Get in Touch
Dismissal from a senior role can be more complicated than other roles. An executive package might include a lengthy notice period, pension contributions, bonuses, commission, and share options. Before accepting a termination payment, at Nationwide Employment Lawyers we recommend checking exactly when employment will end, how notice is being handled and what will happen to each part of the remuneration package.
The distinction between garden leave and payment in lieu of notice is especially important during executive dismissal. One keeps the working relationship in place, while the other usually brings employment to an immediate end. That difference can affect benefits, bonus eligibility, share awards and post-termination restrictions.
How Can an Employer Handle an Executive’s Notice Period?
An executive contract should state how much notice the employer must provide. Following dismissal, the employer may:
- Require the executive to work during notice
- Place them on garden leave
- End employment immediately with a payment in lieu of notice
- Dismiss without notice where gross misconduct is alleged
Each option creates a different legal and financial position. So, it is important to look beyond the headline payment and consider the effect on the executive’s wider package.
What Does Garden Leave Mean?
Garden leave is when an employer removes an executive from their usual responsibilities while keeping them employed during the notice period. They might be told not to attend work, contact clients or access company systems. Yet, they might still be required to remain available for questions or a handover. This arrangement is often used where an executive has access to sensitive information, strategic plans or important client relationships.
Since employment continues and the executive cannot start a new job during this time, salary and contractual benefits should continue too. These may include pension contributions, medical insurance, a company car and holiday accrual.
Can an Employer Enforce Garden Leave?
Whether an employer can place an executive on garden leave will depend on the employment contract. A clear garden leave clause will allow the employer to remove duties, restrict access to systems and prevent contact with clients or colleagues.
Without this clause, the position might be less straightforward. This can be particularly important for senior professionals whose reputation or earning potential depends on remaining visible within their industry. When providing legal advice at Nationwide Employment Lawyers, our team would consider both the wording of the contract and the practical effect of the proposed garden leave before advising on whether it may be challenged.
What Is Payment in Lieu of Notice?
A payment in lieu of notice (PILON) allows the employer to terminate employment immediately and make a payment instead of requiring the executive to serve their notice.
Employers often include a PILON clause in executive contracts so they can avoid keeping the employee working or on garden leave. This clause should explain what the payment includes. Some only provide the basic salary, while others include certain benefits and allowances. This is an important distinction. A PILON equal to several months of salary may be worth less than the full package the executive would have received by remaining employed during notice.
What Should an Executive Receive When Employment Ends?
The final calculation will depend on the contract and remuneration package. It can include salary up to the termination date, notice pay, accrued holiday, unpaid expenses, earned commission, contractual bonus payments and compensation for lost benefits.
An executive should also distinguish between sums already due under the contract and any separate compensation offered under a settlement agreement. Remember, salary, holiday pay, PILON and contractual bonuses will usually be taxed in the normal way. They should not automatically be treated as tax-free simply because they are included in a termination package.
When Could a Dismissal Be Wrongful?
Wrongful dismissal is a contractual claim. It can arise where an employer dismisses an executive without providing the notice or payment required by the contract. An employer might argue that no notice is due because of gross misconduct. However, describing conduct as gross misconduct does not make the allegation legally correct.
An employment tribunal would consider whether the conduct occurred and whether it was serious enough to justify immediate termination. If not, the executive may be entitled to claim the salary and contractual benefits they would have received during notice. Wrongful dismissal is different from unfair dismissal. Wrongful dismissal concerns breach of contract, while unfair dismissal focuses on the employer’s reason and procedure.
Will an Executive Receive a Bonus During Garden Leave?
Remaining employed during garden leave does not always preserve bonus entitlement. Many bonus schemes state that the employee must still be employed and not be under notice on the payment date. Under these rules, an executive might remain employed but still lose the bonus because they have already given notice.
The bonus scheme should state whether the bonus is guaranteed, formula-based, performance-related or discretionary. It is also important to check whether eligibility depends on continued employment. Timing can also be critical. An executive dismissed shortly before a payment date can lose out on a substantial bonus, especially where the scheme contains strict leaver provisions.
Can a Discretionary Bonus Be Challenged?
A discretionary bonus does not give an employer freedom to pay executives nothing. A decision might be challenged when the employer has ignored the scheme rules, relied on irrelevant factors or acted irrationally. A withheld or unusually low bonus may be questioned when:=
- Performance reviews were consistently strong
- The decision does not match the stated criteria
- Comparable colleagues were treated differently
- No proper explanation has been given
- The decision followed whistleblowing or a discrimination complaint
- Dismissal appears to have been timed to avoid payment
A disappointing bonus is not automatically unlawful. The key question is whether the employer exercised its discretion properly and for a lawful reason.
What Happens to Deferred Bonuses and Share Options?
Deferred bonuses and share options can represent a significant part of an executive’s remuneration. These arrangements are normally governed by separate scheme rules which determine whether the executive is treated as a ‘good leaver’ or ‘bad leaver’.
The outcome might depend on the reason for dismissal, the termination date, whether the executive remains employed during garden leave and any discretion held by the board. An immediate termination date might cause an award to lapse before it vests. On the other hand, a period of garden leave may allow the executive to remain employed until the relevant date.
How Do Restrictive Covenants Affect the Position?
Executive contracts often contain restrictions covering competitors, clients, employees and confidential information. During garden leave, the executive remains employed and will not be able to work for a competitor. Once employment ends, any enforceable post-termination restrictions will begin.
A serious contractual breach by the employer may affect whether certain restrictions can be enforced, but executives should not assume they automatically fall away. We highly recommend getting legal advice before joining a competitor, contacting former clients or encouraging colleagues to resign.
What Should You Do After Executive Dismissal?
To ensure you receive anything you are entitled to after executive dismissal, keep copies of the documents covering your employment and remuneration, including:
- Your employment contract
- The dismissal letter
- Bonus and commission rules
- Share scheme documents
- Recent payslips and performance reviews
- Any proposed settlement agreement
It is important to act quickly. Employment claims are subject to strict time limits, and while the employment tribunal has the power to extend this, they will not do so unless it is just and equitable to do so. Importantly, time frames are not automatically extended to take account of internal appeals or settlement discussions.
Get Legal Advice About Executive Dismissal
The financial impact of executive dismissal can extend beyond salary alone, and the way notice is handled can affect benefits, bonuses, share awards and the date on which an executive can join another business. A termination proposal should therefore be reviewed as a complete package rather than judged by its headline figure.
At Nationwide Employment Lawyers, we advise directors, executives and senior professionals on notice arrangements, dismissal and settlement negotiations. We can review the relevant documents, identify payments that may have been overlooked and advise on possible wrongful dismissal, unfair dismissal, discrimination or whistleblowing claims.
If you have been dismissed from a senior position or offered a termination package, please contact us for tailored legal advice before accepting the proposed terms.
