Accomplishing senior executive terminations in line with UK law

Any company considering a senior executive termination faces potentially complex issues that must be successfully resolved in order for the dismissal to comply with UK employment law. This remains true whether the dismissal involves an executive or director who has agreed to negotiate the termination of his or her position, or one on whom that termination is to be imposed.

The law that has to be complied with may vary depending on the reason for the dismissal; redundancy, poor performance and gross misconduct each provide the business and worker with differing rights and responsibilities. It is important, therefore, to establish the reason for a termination and the resulting aspects of contract and employment law that are applicable.

It is rare, but not unknown, that a senior executive will be dismissed but required to work throughout his or her full notice period. Offering a full notice period may comply with the executive's contract but does not, by itself, guarantee compliance with the law relating to discrimination and unfair dismissal.

Certain circumstances, such as a serious repudiatory breach of a contract of employment, allow a company to make a summary dismissal of an executive or director, without notice or compensatory payment. These circumstances are also rare, but if it can be shown that such a dismissal is an appropriate response, and a fair procedure has been followed, there should be no opportunity for a successful unfair dismissal claim.

More commonly, a business seeking to terminate a senior employee will want to do so without the employee serving his or her notice as they will not want them to be around the office. The employer will need to be careful it does not breach the employee's contract in this regard. Some companies may use garden leave to achieve this (if they have such a clause in the contract). Alternatively, if the contract contains a payment in lieu of notice (PILON) clause, this may be utilised.

Although offering such a payment without a PILON clause may be a breach of contract, it is often the case that any damages awarded to a successful claimant would be reduced relative to the payment made; i.e. the payment may be considered as 'pre-emptive' compensation for that breach of contract. However, this could have a knock on effect on any restrictive covenants being enforceable.

An example of an issue that can arise in a senior executive termination can be seen in the tax liability of contractual and non-contractual PILON sums; whilst the latter, as a compensatory payment, is likely to benefit from a £30,000 tax-free exemption, the contractual payment will not. The range of related issues means that businesses seeking to dismiss directors or other senior staff are not only wise to seek advice from employment lawyers regarding compliance with the law, but to appoint a firm with a strong understanding of the commercial repercussions of the dismissal.

The highly experienced Employment Law department at JMW Solicitors brings such an understanding, comprising lawyers able to marry an acute business understanding to a comprehensive grasp of the relevant legislation and precedents covering this situation.

Under the leadership of partner Lindsey Bell, the services offered by our team will provide cost-effective and efficient services to assist your business in proceeding with its commercial needs whilst complying with all relevant legal obligations. To discuss the specifics of your firm's requirements, and how JMW can contribute, please contact us on 0345 872 6666 or complete our enquiry form and we will get back to you.