Directors & Shareholders
Given the prominence directors will normally bring to a business, a lot of organisations spend a great deal of time and resource in recruiting senior personnel. As a result, there will always be a detailed discussion between the parties in both agreeing the duties the individual will undertake, as well as the remuneration package. Not surprisingly, the overall compensation package tends to exercise the mind of the individual, whilst the business tends to focus more about the value that he is likely to bring to the business.
A common mistake is that insufficient attention is given to making sure that what may have been agreed verbally between the parties is then translated into a properly drafted service agreement. In getting caught up in the buzz of attracting a high profile senior manager very little time will have been spent in addressing what happens when the relationship ends, particularly if it does so in acrimonious circumstances as it sometimes does.
Pay reviews, performance related bonuses, share options, permanent health insurance, PMI and car benefits all need careful drafting. So too will notice provisions, garden leave, confidentiality clauses and restrictive covenants if the business wants any hope of being able to manage the relationship on termination more effectively.
Whether or not one gets advanced warning about a senior manager that may be planning to leave, or the Board decides that it is time for an individual to move on (perhaps a trust and confidence issue), making the right decisions in order to protect the business is crucial. What are the warning signs of things going wrong; working from home, excessive email traffic, off-site meetings, a marked deterioration in the working relationship? Should the business negotiate a mutual departure or does it initiate disciplinary proceedings – in which case, when is it best to dismiss summarily or send home on garden leave? Importantly, what is the inter-relationship between these various options and what are the implications for deciding on which one (or a combination of them) to use?
Other considerations come into play if the individual is also a shareholder. Both the company’s Articles of Association and any shareholders agreement will need to be considered in order to see what rights and obligations exist. Are there any good leaver/bad leaver provisions and what about any compulsory share transfer clauses?
Having got a senior manager physically out of the business (whether on garden leave or following dismissal) attention invariably turns to thoughts about a severance agreement and what package needs to be offered in order to resolve matters amicably. What are the individual’s contractual and statutory claims, and what about his duty to mitigate?
If the employment relationship ends badly, or the individual leaves with the intention of competing or damaging the business and its goodwill, what are the options open to it? In the absence of enforceable restrictive covenants, can the business rely on express or implied duties of confidentiality; what about database rights as well as considering whether there are any ongoing fiduciary duties even in circumstances where the employee may not have been a statutory director?