October 18, 2023

How to negotiate your settlement agreement, for Directors and Senior Executives

Termination negotiations for Directors and Senior Executives, from expert employment lawyers.

Termination negotiations are a complex area of employment law, we know how to get them right.

Termination negotiation is the process of discussing and agreeing on the terms and conditions of an employee’s departure from their job. This can take place for a variety of reasons, including redundancy, performance issues, misconduct, or a breakdown in working relations.

UK law sets out certain minimum requirements that employers must meet. For example, employers must give or pay a contractual or statutory period of notice before terminating their employment, and they must pay employees any statutory redundancy pay to which they are entitled.

However, employers and employees are free to negotiate additional terms and conditions, such as a severance package, retention of shares, or agreed reference. This is where termination negotiation comes in.

Termination negotiation can be a complex and challenging process, including whether such negotiations are started under s.111A Employment Rights Act (protected conversation) or under the wider ‘without prejudice’ rule.

The terms and conditions of an employee’s departure are almost always recorded in a settlement agreement, under which the outgoing employee will agree to give up claims against their employer. In settlement agreement negotiations it is crucial that employees receive advice on the value of the claims they are waiving and whether the severance package proposed by their employer is reasonable, considering their particular situation and by benchmarking against other exits in their sector.

A common misconception is that employees need to wait for their employer to start termination negotiations. It’s important that you enter such negotiations with a well-thought-out strategy. Choosing a lawyer who is an expert in termination negotiations can help you achieve the best package possible.

Read our guide to some commonly asked questions about termination negotiations, or contact our team today using the details below.

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How can an employment lawyer help with an exit negotiation strategy?

Your employment lawyer should be an expert on negotiations and severance packages, helping you to achieve the best possible severance package. Your employment law solicitor should ensure that any agreement protects your financial, professional, and reputational interests.

How do statutory claims affect the compensation you can receive?

Most severance packages are conditional upon you giving up your statutory claims, such as breach of contract or unfair dismissal. The value of the claims you are giving up, should be properly compensated in the settlement agreement.

Do I have an uncapped statutory claim?

Compensation for unfair dismissal claims are capped at £105,707 (as at 2023) but other statutory claims, including breach of contract and discrimination are uncapped.

What is a whistleblowing claim?

If you have made a disclosure of information at work, which is in the public interest and shows wrongdoing set out in the Employment Rights Act (such as a breach of a legal obligation or a danger to health and safety), this is called a protected disclosure. If you were to be treated badly or dismissed for whistleblowing you could bring legal claims against your employer and the individuals involved. These claims are uncapped and significantly increase the likely value of a settlement or severance package.

How can protected characteristics impact on settlement claim value?

Protected characteristics (such as race, religion, gender, sexual orientation, age, disability, and pregnancy) are characteristics which are protected under the Equality Act 2010. If you are treated badly or dismissed because of a protected characteristic you could bring legal claims against your employer and the individuals involved. These claims are uncapped and significantly increase the likely value of a settlement or severance package.

How do statutory restrictions or corporate governance considerations affect a senior executive settlement?

Under the ‘Public Sector Exit Payment Cap Regulations 2019’ public sector settlements are capped at £95,000 unless in circumstances specified in the regulations. Corporate governance rules can also affect settlement agreements, including restricting NDA’s and imposing caps on severance packages

Does a senior executive departure have to be reported to a regulator?

Some regulators, like the Financial Conduct Authority, legally require employers to notify them of disciplinary related dismissals against certain employees

How can I protect my reputation?

We understand that your reputation is vital to your ongoing career. We help ensure clients receive agreed references and confidentiality guarantees, which prevent the employer from speaking badly about you. We also assist clients in securing agreed internal and external leaving announcements to ensure a consistent and positive narrative on why you are leaving.

Will I retain my shares in the Company if I leave?

We can advise you on any long-term incentive plan or relevant share option scheme you are a member of. Where applicable, we help negotiate the retention or realisation of shares or options. Giving up valuable future payments under a long-term incentive plan can be used as leverage by your employment law solicitor to negotiate an increased termination payment.

Can you get career transition support within any senior executive package?

Yes, outplacement support is an important benefit which may be negotiated under a settlement or severance negotiation.

Can my employer restrict who I work for?

It is commonplace for employees to be asked to confirm in a settlement agreement that they will remain bound by restrictive covenants, which seek to restrict who the employee can work for, or with, after their employment terminates. Whether such restrictions are enforceable is a matter of law. Your employment law solicitor should advise you on whether the restrictions go further than is reasonably necessary to protect your employer’s legitimate business interests. Reducing the scope or length of restrictive covenants is an important part of termination negotiations.

What tax liabilities are there on a cross-border departure?

It is important that you take specialist tax advice to determine whether you are liable for any additional tax, if you are receiving a severance package from your employer. In some situations you may have to personally pay tax on a settlement payment and in most cases you will be required by your employer to give a ‘tax indemnity’ in which you promise to repay your employer for any additional tax demanded on a settlement payment.

How to ensure ongoing provision of directors' and officers' liability insurance.

If you are a statutory director or officer of your employer, your solicitor should ensure that you remain covered under the Employers’ insurance for 6 years from the termination of your employment.

Speak to the team if you have any further questions

Talk to our expert employment lawyers about your contract review or employment law matter.

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