Well – yes and no. Whilst this is the sort of answer you would normally despair of from a lawyer, in this particular instance shades of grey are and can be used to your advantage so that you have a simple and practical approach to the issue.
The main difference when you are considering dismissing members of the senior management team or a director on a board is that they will generally be part of the decision making process for big decisions. This inevitably raises the issue that turkeys dont’ want to vote for Christmas!
The complications that can arise with our hypothetical finance director include some of the following:
- Who makes the decision?
- Do you need to hold a board meeting to make the decision and, if so, does the director need to be invited?
- Do you follow a process or do you work out a fair exit package and just make a “without prejudice” offer?
- Do you look to see if there are issues of misconduct you can raise to try to improve your negotiating position?
- If you are a listed company when do you have to notify the market?
- If you are FSA regulated what do you need to tell the FSA?
It is very important to work out at the very beginning how you want to approach this type of dismissal as it will have important knock on implications for other employees, how the Company is perceived and of course how you will manage the business going forward.
Making the Decision
In terms of the decision to dismiss, if the individual is not a director, the decision making process will be fairly straightforward. However, if the individual is a director check that his contract does not state that notice has to be given by the Board. Assuming that notice from the Board is not required, it is often useful to have senior management meetings rather than board meetings to confirm the decision to dismiss as the individual can be excluded from the meeting.
If a board meeting is required, depending on the company’s Articles, the individual will need to be invited, which can create difficulties as the individual will probably raise issues in the hope of improving his negotiating position. One very common example is employees trying to claim they have blown the whistle by suggesting a breach of a legal obligation (sometimes relating to themselves) in order to try to lift the £70,000 compensation cap for unfair dismissal. There may also be issues in removing a director from the board if the dismissal is contested, although this will in part depend on the company’s Articles as well as provisions in the director’s contract.
The Reason for Dismissal
Having decided who is going to take the decision and how that will be organised, it is then important for the employer to consider the reason for the dismissal. The most common reasons which are typically scene in this scenario are redundancy, poor performance or clash of personalities. More rarely there may be serious allegations which amount to gross misconduct. The reason will have a significant impact on what the departing employee is likely to be entitled to. Redundancy, for example, usually means that an employee would have good leaver status for the purposes of potentially valuable stock or deferred bonuses they hold. Gross misconduct or poor performance would usually make them a bad leaver for these purposes. Gross misconduct will also deprive the individual of notice monies. If the aim is to reach a mutual agreement, it is important to check how share scheme and bonus plan rules apply to that situation.
A word of warning on gross misconduct. Going on a fishing expedition through email and phone records or “inventing” a spurious reason for dismissing the individual for gross misconduct is likely to result in unfair dismissal and breach of contract and creates additional disclosure obilgations to the FSA (see below for the implications of this). Only proceed with a gross misconduct dismissal if you have good grounds.
Follow a Process?
The other practical problem is that in the UK, unlike some other countries, unfair dismissal law (requiring employers to follow a fair procedure, monitor performance and give warnings and hold hearings to give an employee the opportunity to tell his or her side of the story) applies to all employees even board directors! This means that potentially the law requires this Finance Director to put on a performance improvement plan before he is sacked.
This is usually unrealistic in the senior corporate environment and almost never put into practice. Usually a deal will be agreed, but that does mean having to concede unfair dismissal claim in the exit negotiations.
Breaching the Contract
Whilst a company may concede unfair dismissal it will usually not want to breach a senior employee’s contract, for example by not paying the proper notice monies and any other payments that are due under the contract (including any agreed exit payments or “golden parachutes”). It is likely that there will be confidentiality obligations and restrictions on what the employee can do in competition after he leaves and, if the contract is breached, the company will not be able to enforce these restrictions.
The Regulatory Information Service and the FSA
If the individual is an “Approved Person” a ‘Form C’ notification will need to be made to the FSA that he has left the company. If misconduct is a factor in the termination of employment, further details will need to be provided to the FSA.
Where a company is listed, that company is obliged to notify a Regulatory Information Service (RIS) of the removal, retirement or resignation of a director “as soon as possible” and by no later than the end of the business day following the decision.
Conclusion
In practice, the best way to deal with the issue is to calculate what the senior employee may be entitled to and to try to reach an amicable deal. The formalities can be worked out as part of that process.
If that is not possible, it is important to get your ducks in a row! Work out a plan to include timing and presentation, including when announcements are going to be made to employees, clients and other parties about both the departure and how is taking over/covering. This sometimes means being prepared to have a dispute and to put up with a certain amount of posturing – the better planned you are, both in terms of the reasons for your actions and the ancillary issues, the better position you will be in both legally and in terms of negotiating a good settlement.
