Executive Dismissal

Where a director or executive has been dismissed from his or her position, there are a number of potential scenarios in which compensation can be sought.

Wrongful dismissal

A director or executive can take action for wrongful dismissal where a) he or she has been dismissed, b) there has been no gross misconduct on the director or executive’s part and c) the contractual dismissal obligations of the employer have not been fulfilled.  A situation that would constitute wrongful dismissal is one in which a director or executive has been dismissed without being given the opportunity to work out a contractual notice period or being given a payment in place of that notice.

Employers will often draft a ‘payment in lieu of notice’ option into an employmentcontract to provide them with an alternative having to allow an employee to work out their notice or take the notice as paid leave.  Accepting a payment such as this means the contract has been legitimately terminated by the employer and so any clauses in it that relate to events after the contract – such duties of confidentiality – will still berelevant.  These payments are taxable in the same way as wages.

Even if there is no notice period in the contract, ‘reasonable notice’ must still be given.  This could be anything from three months to a year.  The bare minimum notice entitlement is statutory notice: a week for each year the director or executive was employed, with a maximum time period of 12 weeks.

Even in a case for wrongful dismissal there is a requirement to try and ‘mitigate’ the loss of being dismissed – to find a new job.

Making a wrongful dismissal (breach of contract) claim

Where the claim is worth £25,000 or less, this will be made through an Employment Tribunal.  A higher value claim should be taken to the Civil Courts.  The time limit for an Employment Tribunal claim is three months less one day of the breach of contract, and for a Civil Court this is six years from that point.

Other issues

There are a number of other issues that need to be taken into account where there is a wrongful dismissal.  Entitlement to bonuses and share options should be carefully handled where there is a wrongful dismissal – an director or executive may be entitled to challenge as perverse a bonus that is discretionary and has been withheld or where the amount is very low.  There may also be an opportunity to retain share options in the event of dismissal.  All this will depend on what has been written into the director or executive’s contract and – in the case of share options – on the rules of the option scheme.

In terms of any restrictive covenants in the contract, if the breach of contract by the employer is significant enough these may be able to be renegotiated so that they don’t impact the director or executive’s plans post termination. This is an area that can have serious consequences for a director or executive where not handled correctly and as each case will depend on the individual circumstances, it is a good idea to take bespoke legal advice.

Unfair dismissal

The right not to be unfairly dismissed arises after a year of employment, unless the dismissal is of a type that is automatically unfair, for example for whistleblowing.  A fair dismissal requires:

1. a fair reason for the dismissal  – for example, genuine redundancy, aptitude or misconduct.

2. The correct procedures must be followed so that the dismissal is fair in all the circumstances.  This will depend on the situation of the dismissal, for example conducting a reasonable investigation where an employee is being investigated for misconduct; following proper procedures for redundancy; where there are performance issues giving the employee proper notification of those issues and the chance to improve performance. In most cases the ACAS Code of Practice on Discipline and Grievance Procedure (www.acas.org.uk) must also be followed.

Compensation for unfair dismissal can be awarded by an Employment Tribunal to compensate for the time in which a director or executive was unemployed after the dismissal – this will only be done as far as it is just and equitable to do so and efforts made to find another job, as well as any income received from another job, are taken into account.  The basic compensation entitlement is £430 per week, multiplied by a factor depending on age (0.5, 1 or 1.5),  up to a maximum of £72,300.

A claim for unfair dismissal

An unfair dismissal claim should be made within three months less one day of the last day of employment, the date the director or executive is notified of the end of employment if a payment in lieu of notice is to be made, or the last day of the notice period where a director or executive is to work that notice or take garden leave. An Employment Tribunal has the power to extend this but will not do so in every case unless it is just and equitable to do so, and it is not extended automatically to take account of internal appeal procedures.

There is usually a requirement to follow the ACAS Code of Practice on Discipline and Grievance Procedures (www.acas.org.uk) in unfair dismissal cases. This aims to resolve workplace disputes before court proceedings are initiated so where a situation requires the Code is followed first, it is unwise to ignore it. There are some serious penalties for both employers and employees who don’t follow the Code – for example any compensation an employee receives from an Employment Tribunal may be reduced by up to 25%.

Redundancy

Redundancy can be a genuine reason for dismissing a director or executive, as long as it is motivated by the right reasons.  There must be a cessation of business in the place that the director or executive works, a total cessation of the employer’s business, or a reduction or cessation in the need for an employee to carry out the role performed by that executive or director.

Statutory redundancy pay is available to those continuously employed for more than two years, on the basis of £430 per week, multiplied by a factor depending on age (0.5, 1 or 1.5), and most executive contracts will also contain provisions for enhanced redundancy pay.  If a suitable alternative offer of employment is made by an employer and is refused by the director or executive without a good reason to do so, then the director or executive may lose his or her right to redundancy payment.  TheACAS Code of Practice on Discipline and Grievance Procedures is not applicable to redundancy situations.

A claim for discrimination can be made by an executive or director where his or her dismissal amounts to unfavourable treatment that is based on the director or executive’s sex, race, religion, sexual orientation, or in the case of a disability if there has been no attempt by the employer to make a reasonable adjustment to account for the disability. The amount of compensation that can be awarded in a discrimination case is unlimited.