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Senior Exits: How to negotiate a Senior Employee’s Exit package

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Senior Exits: How to negotiate a Senior Employee’s Exit package

When the relationship between a company and its senior executives, at board level or below, sours, a parting of the ways is usually inevitable. This is called a Senior Exit. The key concern is to ensure that an awkward situation does not turn into a long drawn out, publicly-fought battle and/or litigation.

In most cases, the parties will want to have a short period of negotiation to establish the commercial terms of the deal. They will then have this ratified by way of a settlement agreement, to provide a clean break between the parties.  However, that might be easier said than done.

Alternatively, parties may engage in a “performance improvement process”, which, if done properly, will take several weeks to complete and distract the main people involved from doing their day jobs.

From the point of view of the employer, much will depend on why it wants to part company with the executive.  Was it underperformance and not hitting KPIs or was it something vaguer like not being the right “cultural” fit or not sharing the same vision for the direction of the company? In some cases, it might be misconduct. Both employer and employee may prefer not to go through a stressful disciplinary process.

The reason behind the employer’s desire to part company with a senior employee may well determine how generous they want to be with the compensation package. That, in turn, may be influenced by the company’s financial position.

An Employment Lawyer can assist Employers in carefully and constructively navigating senior exits, and assist senior employees in negotiating their senior exit package. Please contact us on 01707 329333 or email for more information.

What is a Senior Exit?

Simply, a senior exit is the termination of employment of a senior employee.

What does Senior Employee mean?

There is no legal definition of a Senior Employee. Generally, this refers to employees who hold positions of authority in the business. For example, statutory directors, managers and trusted people involved in decision-making or client accounts. Senior employees will probably be amongst the higher paid on the payroll and may receive significant bonuses and/or have equity incentives (e.g. LTIPS) in the case of companies.

In addition to remuneration, a senior employee may well be subject to post-termination restrictive covenants such as non-compete and non-solicitation clauses.

What is a negotiated exit?

In summary, a negotiated exit is where the employee leaves the business following negotiations with the employer.  There may be a background of a dispute or it may be the case that the parties have decided to part company before the relationship sours. This contrasts with a situation where the employer dismisses the employee, either on notice or summarily, or the employee resigns of their own volition.

What is the difference between exit, resign and termination?

  • An "exit" means a termination of employment.
  • “Resign” means where the employee informs its employer, usually on notice, that they wish to terminate their employment.
  • “Sacking” is where the employer dismisses the employee  and thus brings about  the termination of the employee’s employment.  That might imply, but does not have to mean, that the dismissal is unfair.
  • “Termination” refers to the ending of the employee’s employment, for whatever reason, be it “sacking”, dismissal or resignation. All employments will terminate at some point. The crucial issue is to examine why the employment has terminated and whether it has done so in circumstances of unfairness.

How do you dismiss a senior manager?

You may dismiss a senior manager in two ways:

  • By following a lawful dismissal process
  • By meeting with the employee and having a “protected conversation” to bring about an end to the employment relationship.

It is no different a situation to ending the employment of any employee, save that with a senior employee they may be better remunerated, perhaps have a public profile within the business sector or wider and they may play a significant role in the business.

What are the reasons an employee can be dismissed for?

There are only five lawful reasons an employer can rely on for terminating an employee’s employment;

  1. redundancy
  2. conduct
  3. capability or qualifications
  4. some other substantial reason (SOSR)
  5. illegality (eg immigration status).

A reason which falls outside these categories is unlawful and could lead to a claim for unfair dismissal.

An employer needs to follow the correct processes and procedures to ensure that a dismissal is lawful.  The ACAS Code of Practice on Disciplinary and Grievance Procedures needs to be consulted and followed.

In the case of an underperforming employee, a performance management process should be followed where clear, realistic and measurable targets are given to the employee over a reasonable period of time.  That can be an arduous and lengthy process and many employers might try to short circuit it by having a “protected conversation” with the employee.  An employee can also try to initiate that as well.

Please contact us if you are an employer seeking advice about dismissing an employee.

What is a good exit package?

In every case, the meaning of a good exit package will depend on:

  • the strength of your position
  • what you want to achieve from the negotiation.

For the employee, it will usually include maximising the financial payment to them, but it might also include reducing or removing restrictive covenants such as non-compete clauses so that they can resume their career as soon as possible elsewhere. It might also include, where relevant, the release of long term cash or equity incentives. Although, this can often be difficult and will depend upon the scheme rules. An agreed reference and public announcement are also usually desirable.

From the point of view of the employer, a good exit package will be one that resolves the situation quickly for reasonable cost and without court or tribunal proceedings.

Any agreed exit should be formalised in a settlement agreement.

Do I need an employment lawyer to negotiate an exit?

It is not necessary to use an employment lawyer to negotiate an exit. However, you should strongly consider taking legal advice in order to determine the strength of your position. This can also help work out what “leverage” you might have to obtain or improve your exit package.  Even if you are confident in negotiating the heads of terms of the agreement, you will almost certainly be asked by your employer to enter into a settlement agreement before any monies are handed over. You will need to take independent legal advice on the terms of the Settlement Agreement. Please contact us for more information about settlement agreements.

How do I negotiate an exit package?                                      

Each situation is unique and there is not one set method to negotiate an exit package.

There are two issues here:

Firstly, what contractual rights does the employee have? For instance, what notice do they have to give or be given?

Secondly, you need to understand the strength of your position.  If you are the employer, what lawful grounds do you have for terminating the employee’s employment? If there are strong reasons for doing so and the risk of a successful claim for unfair dismissal reduced, an employer might not want to make a very generous offer.

On the other hand, if the employee might be in a strong position to pursue a claim, the employer might be minded to approach or even meet the employee’s demands in order to settle the whole situation.

You may wish to seek legal advice to assist you in negotiating your exit package. Please get in touch wish us for more information.

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In conclusion, senior exits and the dismissal of senior executives can be a complex process. It depends on the unique situation of the employee and employer.

An Employment Lawyer can assist Employers in carefully and constructively navigating senior exits. They can also assist senior employees in negotiating their senior exit package. Please contact us on 01707 329333 or email for more information.

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