Managing the exit of a senior executive is one of the most complex and high-stakes responsibilities for HR. Beyond the standard employment law considerations, these departures carry legal, financial, commercial, and reputational risks that require meticulous planning, structured processes, and close governance. This article provides practical guidance for HR professionals navigating board-level exits.
Understanding the risk landscape
Legal risks: Senior exits attract elevated exposure to claims for unfair dismissal, discrimination, and whistleblowing. Tribunals scrutinise both the reason for dismissal and the process followed, including compliance with the ACAS Code. Discrimination and whistleblowing claims carry uncapped compensation, while unfair dismissal requires a fair reason and a fair process. Government proposals, such as extending unfair dismissal protection from day one via the Employment Rights Bill, further heighten risk and should be factored into planning.
Financial risks: Liabilities often extend well beyond salary and notice to include bonuses, commission, pensions, and equity awards. Treatment of long-term incentive plans (LTIPs) and options depends on plan rules, “good leaver” status, proration, garden leave, and holding periods. Listed companies are additionally constrained by shareholder-approved remuneration policies and Investment Association principles.
Commercial risks: Exits can trigger reputational harm, investor concern, client disruption, and instability in high-performing teams. For regulated sectors, personal and corporate exposures are heightened, making careful governance, messaging, and regulatory engagement essential.
Executive contracts: Notice, PILON, and garden leave
A thorough audit of the executive’s contract and associated agreements is critical:
Notice and PILON: Confirm notice provisions, asymmetries between employer and employee rights, and whether shareholder approval is required for director notice beyond two years. Expressly contractual PILON clauses mitigate wrongful dismissal risk and preserve restrictive covenants.
Garden leave: Ensure clarity on garden leave powers, offsets against post-termination restrictions, and treatment of pay and benefits.
Bonus and LTIP treatment: Align leave provisions with incentive plans to prevent unintended vesting or disputes.
Directorships: For CEOs and executive directors, verify obligations to resign statutory and group directorships to prevent boardroom deadlock and facilitate timely filings.
Protecting confidentiality, IP, and restrictive covenants
Audit covenants: Review contracts and ancillary documents to confirm confidentiality, IP, and restrictive covenants are enforceable. Refresh outdated clauses and remind executives of ongoing obligations.
High-risk roles: Secure IT evidence if misuse of confidential information is suspected and be ready to seek injunctions. Consider non-compete, non-solicit, and non-disparagement provisions in settlements to stabilize teams and client relationships.
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Choosing the dismissal route
Process-led dismissal: Conduct, capability, redundancy, and “some other substantial reason” (SOSR) dismissals require fair investigations, warnings, and hearings under the ACAS Code. Skipping steps risks an uplift of up to 25% in compensation. Redundancy requires genuine consultation and fair selection, with careful attention to discrimination risks.
Negotiated exit: Protected conversations (s.111A) or “without prejudice” discussions allow for negotiated exits while mitigating ordinary unfair dismissal risk. Prepare robust plans, script key messages, and ensure sufficient time for consideration. Always maintain a Plan B formal process if negotiations fail.
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Structuring settlement agreements
A valid settlement agreement requires:
Independent legal advice for the executive
Clear definitions of payments, tax treatment, and benefits
Alignment with bonus, LTIP, and remuneration policies
Confidentiality, non-disparagement, IP assignment, and restrictive covenant reaffirmation
Regulatory notifications, agreed references, and director/group resignations
Key considerations include the tax-efficient structuring of termination payments, ensuring LTIP treatment complies with plan rules and shareholder approvals, and safeguarding regulatory and governance obligations.
Special considerations: directors, shareholders, and regulated sectors
Directors: Address employment, directorship, and shareholding separately. Secure board/committee approvals and coordinate Companies House filings.
Listed companies: Exit terms and LTIP treatment must comply with shareholder-approved remuneration policies. Disclosures in remuneration reports may be required.
Regulated sectors: Account for SMCR duties, regulatory references, fitness and propriety considerations, and D&O insurance continuity. Communications to regulators must be carefully managed.
Keeping robust records
Throughout the process, maintain a full documentary record including: rationale for exit, process steps, negotiation notes, approvals, and signed agreements. Avoid prejudicial comments or process shortcuts that could undermine protected conversations or ACAS compliance.
Appendix A: Senior Executive Exit Checklist
1. Map legal, financial, and commercial risks
2. Audit service agreements, policies, and equity plans
3. Decide on dismissal route or negotiated exit
4. Prepare Plan B formal process
5. Lock down confidentiality, IP, and restrictive covenants
6. Structure settlements: tax, shares, references, regulatory issues
7. Align with listed/regulated company constraints
8. Secure board/shareholder approvals and manage filings
9. Maintain full documentary record
Board-level exits demand HR to operate at the intersection of law, finance, and strategy. Meticulous planning, robust governance, and careful negotiation not only mitigate risk but also protect company reputation and ensure smooth transitions at the most senior level.
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