Legal advisers often have to advise commercial clients on how to manage terminating senior or executive employee’s employment. Whilst the law doesn’t apply any differently regardless of level of seniority, as a legal adviser or employer, more careful consideration needs to be taken the more senior an employee is.
Fairly Dismissing an Employee
An employee who has 2 years continuous service has the right not to be unfairly dismissed. As many will have seen, the laws in respect of this time period is likely to change in the next year or so. However, at present, the law remains that an employee needs to have 2 years continuous service to have the right not to be unfairly dismissed.
If an employee does not have 2 years’ service, an employer, technically speaking, can dismiss an employee without fair reason or fair process being followed (unless the employee can claim automatic unfair dismissal should the motives by the employer be discriminatory amongst others).
An employer can dismiss an employee who has 2 years’ service fairly if they can show that the reason (or principal reason) was for one of the five following reasons:
- Capability (whether it be ill health or performance issues)
- Conduct
- Redundancy
- Contravention of a statutory restriction
- Some Other Substantial Reason
Once a fair reason has been established, an employer will need to show that it has acted reasonably in treating that reason as sufficient for the dismissal.
The Test for Reasonableness
As outlined above, dismissing an employee fairly is not just about having established a fair reason. It also requires thought into the reasonableness of the dismissal. The Tribunal has established that reasonableness is split into two parts:
- Has a fair procedure been followed; and
- Did the employer act reasonably (considering its size and administrative resources).
The type of process to follow will largely depend on the reason for the dismissal. Nevertheless, employers should always warn employees that they are at risk of dismissal to allow them to prepare and allow them to put forward their version of events or alternatives. In addition, if an employee has been dismissed, allowing an employee to appeal is further indicative of a fair process.
Turning to reasonableness, the question is whether the employer’s decision fell within the range of reasonable responses available to an employer in the circumstances. More specifically, did the investigation into the reason for the dismissal fall within the range of investigations that a reasonable employer would have carried out.
From a practical standpoint, as legal advisers, we will always advise the following to our commercial clients:
- Are you, as the employer, clear on what the allegations are and the reason for the possible dismissal?
- Is it clear what the employee is arguing from their point of view? If not, clarification must be sought.
- Have all witnesses to the event been interviewed?
- Has the employee had a chance to consider all the evidence before a decision has been made?
- What action, if any, has been taken in the past, in similar circumstances?
- Have alternatives to dismissal been considered and if so, why are these not appropriate.
If an employer has a fair reason for the dismissal and dismissal is considered reasonable in the circumstances, an employee is likely to be dismissed fairly.
Anything different for Executive Employees?
The principles above still apply for dismissing Executive Employees to ensure that from a legal standpoint, dismissal is fair. However, there is more at stake for an employer when dismissing an Executive Employee.
Executive Employees may have significant notice periods, shares in the company or are Trustees. In addition, Executive Employees could be privy to Trade Secrets and confidential information which means that they are subject to restrictive covenants within their contracts. With these additional elements to consider, employers may wish to try and minimise the backlash of termination to better protect themselves.
It is therefore advisable for employers to consider whether it would be commercially beneficial to enter into a settlement agreement before a termination took place (and to do so via without prejudice conversations). Whilst this may mean a payout of financial compensation for loss of office (or an “ex gratia payment“), an employer will have the ability to tie up any lose ends and incorporate employee obligations within the settlement agreement, such as confidentiality; reinforcing any restrictive covenants; the resignation from any Trusteeship or Directorship and a warranty that the employee will not make any degrading/derogatory comments about the company going forward.
If a settlement agreement is not a way forward for an employer, then it is incredibly important that an employer ensures that, as far as possible, matters are tied up as part of the dismissal. Reviewing the employee’s contractual documentation will be the first step, such as contract of employment, bonus scheme etc.
Understanding what monies may be outstanding at the time of dismissal and if discretionary, is it worth paying it as a gesture of goodwill.
In addition, consideration should be had as to whether the employee is likely to be a disgruntled employee or a good leaver and whether to place them on garden leave or pay their notice in lieu. What impact will their dismissal or leaving have on the business and the resources available. Such consideration will need to be considered prior to dismissal as this could impact what plans an employer wishes to set in motion shortly after the dismissal or what to offer by way of final payments.
Final Thoughts
Terminating an employee’s employment is never an easy task. Ensuring that all the correct steps are taken to comply with the legislation is obviously the most important point to take away, for any level of seniority.
However, when it comes to terminating an Executive Employee’s employment, due consideration needs to be given to the after effect of their leaving and what steps need to be taken to tie up the loose ends – this can involve settlement agreements.
