From Exit to Insight: Empowering CEO Leavers

There have been a number of CEO resignations in recent weeks, including the high profile and much publicised departure of the CEO of Coutts Bank in response to the Farage fiasco. Thames Water’s CEO Sarah Bentley left after much criticism over the company’s environmental track record with leakage rate being at a five-year high – the buck ultimately resting with the CEO. These resignations have one core element in common - they happened imminently, just after the ‘bad news’ stories broke.

The cost to the business of a quick fire separation’ for a senior executive can be significant.  Moving on from a achieving an agreed exit via a settlement agreement is usually the most sensible and cost-effective way of handling a CEO’s departure as it provides clarity and finality to both parties enabling each to move forward on a clean break basis.

What might a senior executive need to consider when they are told that their job is at risk because of their performance and there are reputational considerations?

What potential claims might a departing senior executive bring?

Statutory Claims: Unfair Dismissal and Discrimination

When an employee acquires at least 2 years of service, the termination of their employment must be based on one of the ‘potentially fair reasons’. The company must genuinely believe that the dismissal was for one of these reasons, such as capability, conduct, redundancy, breach of any enactment or some other substantial reason. So, for example, in a capability situation, the employer must hold a genuine belief that the employee has had poor conduct or performance and must ensure that they are given the opportunity to improve with a performance management plan. The dismissal should really be a last resort solution and other alternative jobs should be considered. This process could not have been followed with imminent departures and so it is likely that terms were agreed alongside financial incentives by way of an ex-gratia payment.

There are no minimum years of service for a worker to bring a discrimination claim against their company. So, a senior executive may also have a claim for discrimination if their dismissal amounts to less favourable treatment on the grounds of a protected characteristic as defined under the Equality Act 2010 (age, disability, gender reassignment, marriage or civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation) or relates to their fixed-term or part-time status. As there is no cap to the compensation level for a successful claim for discrimination a senior executive can use a potential claim as a tool to leverage for a more favourable exit package.

Contractual Claims: Wrongful Dismissal

There is a period of notice an employer must follow before dismissing an employee. For senior executives, the notice period is likely to be 3/6 months, in some instances even 12 months. A wrongfully dismissed executive can claim compensation for all financial losses and benefits they would have received if their dismissal was dealt with in accordance with their contract of employment. If the executive was to receive a bonus at the end of that period, then that would also be included within a claim, as well as compensation for any non-monetary benefits such as insurance. Consideration would need to be given as to which forum to bring the claim given the limit of £25,000 in the Employment Tribunal. 

Whistleblowing

What if a CEO had blown the whistle about a potential risk to the public during their tenure? The law affords protection to someone who suffers a detriment because they reported a wrongdoing which they genuinely believe has taken place or is likely to happen. A person must have blown the whistle about a criminal offence, a failure to comply with a legal obligation, a miscarriage of justice, a concern about health and safety or environmental damage. In the financial sector, employees who suspect wrongdoing would need to report to the Financial Conduct Authority (‘FCA’) and this would typically be about mis-selling, money laundering, fitness and propriety, systems and controls and unauthorised business. If an employee makes a protected disclosure and then their employment is terminated as a consequence, it may well be argued that this was a factor which attracted their dismissal. The risk of potential exposure might be significant for the company.

Finding a pragmatic solution for a departing senior executive by way of agreed settlement terms is usually the preferred option given the time, costs and resources required to pursue a legal claim, and this often includes terms which the civil courts and employment tribunal are not able to award even in successful cases, such as an agreed reference and approved wording for a departing employee, both of which might have been considered for the latest departing CEOs.

Navigating a leveraged position is key. We at Cole Khan are on hand to assist you and will work with you at each stage to agree strategy which addresses individualised requirements encapsulating all nuances.

Written by Marina Fedrid, Associate at Cole Khan Solicitors

The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.