Directors and Senior Employees

Senior executives and directors present unique legal challenges, both at the point of recruitment and when the relationship comes to an end. These individuals tend to occupy key roles. They bring kudos to the business and are rewarded accordingly. That in turn necessitates comprehensive contractual arrangements.

Recruitment

• Service agreements should reflect negotiated pay, incentives, and protections.
• In regulated sectors, there needs to be compliance with SMCR and other related obligations.

Duties and Governance

• Directors owe statutory duties under the Companies Act 2006, including duties to act in good faith, avoiding conflicts of interest, and promoting the success of the company.
• Common law and fiduciary duties are likely to be relevant.
• Additional regulatory expectations apply under the UK Corporate Governance Code, FCA Handbook, and other sector-specific regimes.

Exits

• Early signs of breakdown include remote working patterns or reduced visibility.
• If the senior employee has been dismissed in circumstances where he/she might be subject to malus and/or clawback provisions in a bonus arrangement, LTIP or other incentive provisions then these will need to be considered and applied accordingly.
• Assessment of whether without prejudice exit discussions, or a formal process is the most appropriate. Garden leave might tactically expedient.
• Evaluating the impact on restrictive covenants when a termination is mishandled.
• If shares are held, review Articles and shareholder agreements to assess rights and obligations. Consider good leaver/bad leaver provisions and compulsory share transfer clauses as part of the mix.

Post-Termination

• Severance agreements must be carefully structured.
• Legal routes may include enforcement of confidentiality or fiduciary duties.