Whether it’s due to strategic differences, cultural misalignment or performance issues, the breakdown of a relationship between a business and a senior executive or board member can be costly and time consuming if not managed carefully. Yet, with the right approach, a business may be able to turn a potentially protracted and difficult situation into a constructive transition. This article explores how businesses can approach these potentially challenging situations. When would this type of situation apply? The exit of a senior member of staff or board member may be due to there being a dispute or breakdown in relations between the individual and someone else (or the Board), or where there are performance or disciplinary issues. Whatever the reason, the business will need to manage the situation carefully to avoid any wider implications for the business and/or to limit its legal risk exposure. What does a business need to consider before it takes any action? It is always prudent to seek legal advice at an early stage to ensure you do not accidentally trip up and expose the business to avoidable claims. As a starting point, the business should also consider: Reviewing any relevant contract of employment and shareholder arrangements as these may include provisions which set out or govern the mechanisms and contractual entitlements on exits, which may in turn vary depending on the reasons behind the proposed exit; The timing of any potential exit and how it might impact the Company’s general commercial and accounting goals and circumstances; and The wider cultural impact of such an exit, for example considering how will it be perceived both internally and externally; will it affect morale and/or confidence; and could it trigger other staff to leave? How does the business start the process of exiting a senior executive? First seek legal advice so that you are fully aware of the various risks and implications of such an exit and the ways and means by which you can best manage the process and/or mitigate the risks. In cases involving disciplinary or performance issues, consider whether from a commercial standpoint, it might be more expedient to initiate a ‘protected conversation’ with a view to agreeing terms which could then be enshrined in a legally binding settlement agreement. Typically, this would involve providing the employee with a sum of money in consideration for their waiving all and any claims which they might otherwise have against the company, arising out of their employment or its termination. If successful, this approach means that the company can avoid having to engage in a protracted process with an uncertain outcome. Off the record conversations may be undertaken under the ‘without prejudice’ rule where there is a pre-existing despite between the parties. Where there is no existing dispute, the employer may be able to rely on the relevant provisions in the Employment Rights Act 1996, which allow for off the record or ‘protected conversation’ (providing certain rules apply). The key differences between a ‘without prejudice’ and ‘protected conversation’ are set out in the table below: Without prejudice Protected conversation (subject to s111A Employment Rights Act 1996) Only effective where there is an existing dispute. No need for there to be an existing dispute. Applies more broadly to most legal claims. Only applies to claims for Unfair Dismissal in the Employment Tribunal. This will not therefore provide the company with effective off-the record conversations for any other claims, such as discrimination/ breach of contract claims etc. N.B. If anything said or done is improper or connected with improper behaviour the protected status may be lost which would allow the employee to refer to the discussions in any subsequent Tribunal claim. Not admissible in court unless specific exceptions apply. Not admissible in court unless it is used by improper behaviour. Turning a challenging situation into an opportunity Managing the exit of a senior executive is rarely straightforward, but a carefully considered and well-advised approach can help protect your business’s legal, commercial and reputational interests. From reviewing contractual documentation and timing, to understanding the nuances of protected and without prejudice conversations, early legal input is vital in shaping a smooth and constructive departure. How Morr & Co can help with exiting a senior executive? If you have any questions or would like any further information on the content of this article, please do not hesitate to contact our Employment team on 0333 038 9100 or email info@morrlaw.com and a member of our expert team will get back to you. Disclaimer Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position. Authored by Amber Fraser Solicitor Message Tags Insights Corporate Insights On this page Contact our team today to find out more get in touch
