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5 Key Issues to Consider When Terminating Overseas Executive Agreements

Despite Brexit and the rising cost of living in the UK, the number of non-UK nationals working in the UK has increased in 2023 and according to Labour Force Survey statistics published in May 2023, the total may be as many as 4.26 million. The number of work visas and skilled worker visas have both increased by approximately 60% compared with last year. About 63,400 organisations are registered as licensed sponsors for work and study and in our practice, we frequently advise employers and senior executives on senior executive hires and departures.

In this article, Partner Merrill April looks at some practical issues to consider when dealing with the termination of overseas executive agreements.

1. Notice periods, Garden leave and payments in lieu of notice

In the UK, termination provisions are normally governed by contract, but there is also an underlying statutory right to minimum notice, that applies to all employees, including those at executive and management level. Executive contracts normally allow for notice of between 3 and 12 months, and are not terminable at will, unless there are grounds for immediate termination, such as a fundamental breach of contract or gross misconduct. Most well-drafted executive service agreements will provide for garden leave and in the alternative for immediate termination and a payment in lieu of notice. Strategic decisions need to be taken about what to offer the executive in this regard. For those employed under a work visa, the right to remain employed may be very important. Equally, if the executive is seen as a competitive threat, despite being let go, the ability to keep them out of the market by placing them on garden leave may be attractive, rather than the employer having to rely on post-termination covenants. Timing is often more acute for expatriates, especially if they are looking to return to their home country or move to another country and tie in that move with their spouse’s career choice, and/ or the needs of children.

2. Statutory considerations

Executives employed in the UK by a UK employer are likely to have UK statutory rights, which will operate in addition to their contractual rights. This will include so called “day1 rights”, such as the right not to be discriminated against on the grounds of one or more protected characteristic and for those with 2 or more years of continuous employment in the UK, the right to a redundancy payment (if applicable) and the right not to be unfairly dismissed. This right can take a multi-national employer operating from the US, in particular, by surprise, as it means that a decision to terminate is not as simple as giving notice under the contract. Care must be taken to determine the true reason for the termination and having done so, whether any additional steps (such as prior consultation or warnings) will be necessary. If the executive has raised concerns that may give them whistleblower protection, this will also need to be considered carefully, to mitigate the risk of claims.

3. Visas specific to employment

Losing your job is always significant. If it also entails losing your right to work in the UK, it is that much more so, and in dealing with a termination of an expatriate, there are additional considerations for both sides to consider.

Where the reason for termination is performance

Issues can arise over whether the alleged performance shortcomings are because of a failed integration into the culture of the UK employer, or even over issues such as communication problems, that may derive from language skills being different from those of a UK national, or the style of communication being a poor “cultural fit,” resulting in complaints from colleagues or external stakeholders. Such potential “performance” issues must be handled very carefully, and it is incumbent on the employer to consider these issues before embarking on what could otherwise be an unfair process; giving rise to claims for unfair dismissal and for potential race discrimination (which includes discrimination on the basis of nationality or national origin). If an employer were tempted to avoid these potential pitfalls and wait for an individual’s visa to expire, then dismiss for illegality or SOSR (some other substantial reason justifying dismissal) this difference in treatment compared with a poor performer with no visa issues, might also be discriminatory and open to challenge.

Where the reason for dismissal is redundancy

We have come across situations in the current uncertain climate, where senior UK executives have been recruited at length and made a move to a new employer (losing their statutory right not to be dismissed and their right to a redundancy payment) and find that within the first 3-4 months they are included in a redundancy pool, when their new employer downsizes or restructures, to react to market conditions. If they are ultimately made redundant, they will likely have no rights to challenge the decision, other than the right to be paid contractual notice. Such unfortunate circumstances can also affect those who are working in a UK employer, under that employer’s sponsor licence. However, there is an additional consideration in the case of these employees. In a restructure, where there are still alternative roles available, the sponsored worker will only be able to move into an alternative role where it will fall under the same Standard Occupational Classification as the one used when their certificate of sponsorship was assigned to them by the sponsoring employer.  

4. Settlement agreement considerations

Accordingly, in the case of sponsored employees, it is worth exploring with the dismissing employer, whether it would be willing to extend the migrant worker’s visa. Where this is even possible (depending on the immigration rules for a particular category) there is nothing in immigration law, the Immigration Rules or the sponsor guidance obliging a sponsor employer to do so, and this becomes a matter for negotiation. Whilst it might be argued that in some circumstances, it is discriminatory not to do so, it depends on the reason advanced by the employer and in practice, in our experience, such extensions are rare.

As a work-around, what is often possible to negotiate is a later end date (with the executive being on garden leave after a handover) so that they can look for other work in the UK, (and a new sponsor) if so desired, and not have to leave the country to do so and disrupt family life.

What is also common in terms of expat- specific provisions, is an agreement for the employer to pay for tax advice (including preparation of tax returns) for the year of termination and in a partnership context, the following year too.

Relocation costs should also be on the negotiation list. Where there is a published relocation policy, this should be adhered to. In smaller companies there may be bespoke deals, and it is important to ascertain what was agreed and reflect this in the agreement. If nothing was agreed, the executive may be facing penalties for giving up a lease early and may still have goods in storage, (if they have not found a permanent home before their contract was terminated) and these can all become significant issues.

It should also go without saying that settlement agreements cannot prohibit the departing executives ongoing right to make whistleblowing disclosures to the employer or to a relevant regulator.

5. Where the Executive is a whistleblower

Whistleblowing rights in the UK and the US vary considerably. The territorial reach of the Securities and Exchange Commission (SEC) is wide and covers UK employees working in companies regulated by the SEC, which includes UK companies and international companies with UK operations, where the stock is traded on Nasdaq or the New York Stock exchange and includes most UK financial institutions.  A situation to watch out for is where a termination is happening in the context of an executive raising whistleblower concerns internally, to gain “protection” from detriment or dismissal and in the case of an SEC regulated business, perhaps before reporting to the SEC. Investigation is crucial and systems needs to be in place to ensure, fast, efficient and thorough investigation. In smaller companies with no dedicated whistleblowing investigators or compliance team, suitably qualified people need to be appointed and given time, access and resources to investigate the alleged wrongdoing. Failure to do so, could mean the Company losing the opportunity to self-report an issue and thus reduce or avoid a potential fine. Whilst the main SEC focus is fraud, all tip offs of wrongful conduct (including employment issues, such as a culture of endemic bullying) should be fully investigated.

It is also important to note, when acting for a whistleblower in this context, that even if the whistleblower is implicated in the wrongdoing, (provided they are not criminally convicted) they can still report and claim whistleblower rewards (average payout $5 million). Whilst their reward would likely be reduced, provided a whistleblower reports the same information to the SEC as they have reported internally (within 120 days of their internal report,) they can claim credit for any disclosures made by the Company and receive a reward if the Company is subsequently fined more than $1 million.

If you would like to discuss any of the points covered in this alert in more detail, please contact Partner Merrill April, who specialises in employment law issues for multinational employers, senior executives, partnerships, LLPs, partners and LLP members.