An Executive who is:
- Not contributing;
- Being paid too much;
- Holding back your attempts to build the
How do we go about removing them without disruption or damage to the business?
If they are a Director, do you have the support on the Board and among the shareholders to remove them as an employee and director?
Contract of employment
- What is their notice period?
- Do we have the right to send them on garden leave?
- Are there any restrictive covenants? [We need to ensure we don’t jeopardise them by breaching the Executive’s contract of employment];
- Do they cease to be a Director if their employment is terminated?
You will need to follow a fair procedure if you want to defend an unfair dismissal claim
Pull together as much evidence of wrongdoing or poor performance as you can or prepare for a redundancy consultation process.
As the maximum award for ordinary unfair dismissal claims cannot be any higher than 12 months gross pay you may be prepared to take that hit and dispense with a fair process if acting quickly is essential. That is unlikely to be necessary if there are solid grounds for dismissal.
But – the reason for dismissal may affect how their shares are valued (good leaver/bad leaver).
Shares and Share Options
If they own shares in the business check the Articles of Association and Shareholder Agreement (if any) to see if ceasing to be an employee or director of the company triggers a sale of their shares
If it does, is there a formula for determining price?
If they have options under a share option scheme check the scheme documentation to work out what happens to their options if they are dismissed.
Often the best option, once you have a plan in place, is to meet them, go through any evidence of wrongdoing/poor performance or reasons for redundancy, but then suggest on a “without prejudice” basis that a deal can be done to cut short a painful and protracted process.
The amount of any settlement package (including shares if they have them) will depend on the negotiating position of the parties, and the benefit to both parties of reaching a swift agreement.
One point to bear in mind is that if the documentation you have to work with is problematic and leaves you in a weak negotiating position, you may want to hold fire and, in the meantime, introduce new Service Agreements and Articles/Shareholder Agreement which improve your position.
You can also use that time to strengthen your position further by gathering evidence which would justify dismissal.
We can help
If you might have to remove an Executive and you need a helping hand through the process from someone who has handled this type of situation many times, let’s have a chat (no charge and no obligation).