Legal advice to dismissed company directors


As a business owner, you may have gone through the redundancy process before, if not, this may be the first time you’ve come across it. Either way, it’s important to be prepared. Individuals can be both directors and employees of a company, and as long as you are an employee, you have the same employment rights as any other employee.

The termination process is the same for all members of a company, regardless of the level of their job title. If you have been employed as a business executive for two or more years, you have the right not to be unfairly dismissed, so there must be a genuine situation of potential dismissal and a fair and reasonable procedure must be followed before the dismissal is confirmed.

Issues to consider when laying off

reputation management

Reputation management, both internally and externally, is one of the most important factors to consider when it comes to laying off employees at the management level. One of the major points of the negotiation is often to try to agree on exactly what will be communicated at the start, in order to reduce the risks of possible disputes later.

Confidential Company Information

Your contract will likely include terms about keeping company information confidential and what you can do after you leave the company. Examples of sensitive information that is understood and accepted for release include listings detailing products or financial information.


What may be more controversial, particularly with regard to the termination process, is any attempt by the company to enforce post-termination restrictive covenants that may prevent you from working in the same industry. . If these restrictions are imposed on you, it is essential that you seek the advice of a lawyer to understand whether these restrictions are legally applicable, or to try to negotiate with your employer on their extent. Companies are often happy to waive it or reduce its scope in the event of layoffs.

garden leave

It is common for an employer to place an employee on “garden leave” for part or all of the employee’s notice period. This means that the employee continues to be employed and paid normally, but is not required to report to work during his notice. This allows the employer to communicate the dismissal to customers and staff and prevent any disagreements from continuing to have a disgruntled employee in the building.

If your employer has decided to place you on gardening leave, the duration of any covenant after termination must be reduced by the length of the gardening leave.

Actions and Benefits

If you are a shareholder of the company, the terms of any shareholders’ agreement will determine how they will be treated. Usually a terminated employer will be treated as a “good start” under such an agreement, which means you can keep the shares.

Additionally, your benefits package may include membership in a Long-Term Investment Plan (LTIP), which means you may hold unvested stock options at the time of your termination. If you hold unvested shares, you are likely to lose all rights to the benefit of the unvested shares, even if you are a good leaver, unless the company agrees. In many cases, the value of the shares is likely to exceed statutory severance and severance pay, making this a major bargaining point.

If you are entitled to a bonus under a company plan, how the bonus will be handled when you leave will generally depend on the terms of the plan, and whether it is contractual or discretionary. Generally, bonuses are discretionary, so employees may have difficulty recovering a bonus; however, it is not impossible. In cases where the bonus is discretionary, it is common for an outgoing director to receive a prorated bonus.

Right to severance pay

Directors who are employed by an insolvent company that then goes into liquidation might also be entitled to statutory severance pay. To be able to claim severance pay, the manager must prove that he is an employee, for example by providing proof that he is an employee or by producing an employment contract. It doesn’t need to be in writing, but a written contract would definitely help your case. Another requirement is that the company has been incorporated for at least two years.

If you are made redundant and you have been offered an increased financial package, it is likely that the company will ask you to sign a settlement agreement. This is a legally binding contract under which you will be asked to waive your right of recourse against your employer. You will need to take legal advice ( on this for it to be binding, although the company will pay most if not all of your legal costs .


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