Executive Severance Agreements

Executive Severance Agreements

It is important that businesses handle the termination of a director’s contract appropriately, especially if you need to achieve a swift exit without disrupting the operation of the business and want to avoid any negative publicity in the process.

First of all you will need to decide the reason for the termination of contract, in most cases this will be due to poor performance leading to a loss of confidence in the director or because of a clash of personalities making the relationship un-workable.  The position may have become redundant or in some cases the director’s actions have amounted to gross misconduct.

When calculating the amount of compensation due to the exiting director the reason for termination will be relevant along with other considerations such as any potential legal claims they may have, the risk of appearing to reward failing employees balanced with the commercial advantage of reaching an amicable and timely settlement.

To ensure that any agreement you reach is legally binding it is advisable that the parties enter into a ‘settlement agreement’.  This will provide that the employer agrees to pay a certain sum in return for the outgoing director’s agreement not to bring any contractual or statutory employment claims against the company.  The agreement also allows terms relating to the return of company property or the restating of restrictive covenants to be added.