Dismissing an employee can expose a business to risk. However, removing a member of the senior executive team can create further risk if done incorrectly. This is because a senior executive will often be a registered director at Companies House and a shareholder. This means that a company must comply not only with employment law, but also the law of company and contract.
The reason for removing an executive will determine what legal process a company must follow in order to fairly dismiss the individual. Redundancy, poor performance or gross misconduct are all potentially fair reasons for dismissal, but each require a different process to be followed in order for any resulting dismissal to be procedurally fair.
The reason for dismissal will also dictate the executive’s right to notice. If dismissed for gross misconduct, the executive can be dismissed without notice but where the executive is dismissed for redundancy or poor performance, they must be given notice.
If an executive is entitled to notice a company may not want them to work out their notice period and may prefer to pay them in lieu of their notice period (PILON) or place them on a period of garden leave. This can only occur if the executive’s contract contains clauses allowing the company to do this, and to dismiss contrary to the terms of the contract can result in a breach of contract or wrongful dismissal claim, and potentially release the executive from their continuing obligations under any restrictive covenants, including any contractual obligation not to solicit employees or customers.
It does not automatically follow that fairly dismissing an executive director from their employment removes them as a director and / or shareholder of the company. There are separate processes to follow when dealing with the removal of a director or a shareholder. Regard must initially be given to the executive’s director service agreement and any shareholder’s agreement, and also company and contract law. Specialist commercial advice should therefore be taken before steps are taken to remove a senior executive director to avoid breaching any such agreements or company and commercial law.
At Banner Jones Solicitors our Business Legal Services team comprises of expert employment and commercial solicitors here to ensure the smooth removal of any senior member of your executive team. Get in touch today.