Opportunities are opening up for senior executives as the UK labour market continues to recover, following the Coronavirus pandemic. As a result, many senior executives will either be contemplating a strategic move or facing a possible exit from their current role as a result of restructuring, as companies re-position to take advantage of changes in their sector. In this alert Partner Merrill April and Senior Associate Louise O’Connor discuss 5 top tips for senior executives to consider when making a strategic move.
1. Don’t be Held Hostage by your Restrictive Covenants
The starting point for a senior executive who is considering a departure from their current role will always be to carefully review their employment documentation, if it is available without alerting suspicion. Valuable information may be spread across a number of different documents, which may have been amended over time. A core consideration will be the restraints imposed on them by virtue of their restrictive covenants which, if enforceable, could severely impact or even curtail the immediate options available to them. It is also important to remember that restrictive covenants in an employment contract may have been superseded or augmented by more onerous covenants contained in, for example, shareholder agreements or share purchase agreements. An executive who breaches their restrictive covenants could experience a range of significant retaliatory actions from their former employer, from being subjected to hefty clawback provisions to being served with injunctive proceedings. It is, therefore, important that expert advice is obtained prior to considering any act which may potentially breach their restrictive covenants. Once you have advice on enforceability, it is much easier to determine a sensible strategy that will enable an executive to leave and advance their career in the best way and avoid litigation through informed negotiation.
2. Don’t be too Quick to Resign
If a senior executive is contemplating a strategic move because of untenable conditions within their current workplace, it is vital that they obtain appropriate advice before simply deciding to resign. An executive who is being unfairly treated at work, for example, because their contract has been breached, or because they have been or are being treated in a discriminatory fashion or being victimised as a result of asserting a workplace right, may have significant protections available to them. It may be necessary to assert those rights whilst still employed, or to articulate them in the right way at the point of resignation which will give the executive significant leverage to negotiate valuable concessions on their departure, such as a waiver or reduction of their post-termination restrictions or payment of compensation.
3. Preparation, Preparation, Preparation!
Whilst an executive should not be too quick to resign, it is also imperative that they do not delay a resignation in the appropriate circumstances. It is not uncommon for senior executives to seek advice following a protracted period of being increasingly marginalised in their workplace, only to learn that they may have had a strong case for constructive dismissal or detriment as a result of an act of their employer which occurred some time previously, such as the removal of a significant component of their role. However, if an executive does not take prompt action in response to a breach by their employer, they may be deemed to have affirmed the contract and, thus, lost their opportunity to make a claim for constructive dismissal or for pre-termination detriment. Aside from any potential financial award in litigation, an executive who is found to have been constructively dismissed may also be released from their restrictive covenants, which can potentially be extremely valuable if they wish to join a competitor immediately. They may also attain ‘Good Leaver’ status (or at least avoid becoming a “Bad Leaver” on resignation) under the relevant equity agreements, which may afford them very significant equity benefits, such as the right to retain vested and unvested awards.
4. Protect Your Equity
Many senior executives will have the benefit of incentive agreements which may not have vested at the time the executive decides to leave the business. Careful consideration must be given to the provisions of such agreements, particularly whether the Company has discretion under the relevant schemes. The existence of such discretion can often provide the foundation for strong legal arguments as to why it should be favourably exercised. Public companies are often more limited in their ability to exercise discretion over the provisions of incentive agreements and review of the relevant Remuneration Policy will be key in these situations and, depending on the circumstance, a senior executive may wish to consider the timing of their resignation, having regards to the agreements surrounding a relevant transaction (such as a merger subject to court approval) so as to maximise their financial benefits on departure.
5. Timing is Everything
It is not uncommon for our senior executive clients to underestimate the importance of timing their decisions when making a strategic move. From when and how they raise issues prior to resignation; to the timing of a formal resignation; (especially having regard to payment of bonus and the vesting of LTIPs); to when their restrictive covenants bite, to the time period in which to bring a claim against their employer, timing is paramount. The financial consequences, the impact on wellbeing and the reputational considerations involved in a strategic move are likely to be enhanced by obtaining prudent and timely advice.
If you are a senior executive or founder considering a strategic move, with questions arising from this alert, or for specific legal advice on particular circumstances, please contact our Partner Merrill April and Associate Louise O’Connor, both of whom specialise in employment and partnership issues for multinational employers, senior executives, partnerships and partners.
Read our Little Book of Senior Executives: Appointments and Agreements here.
CM Murray LLP is ranked in Band 1/Tier 1 by Chambers and Partners and Legal 500, with ”a reputation that can’t be beaten for senior executive work” (Legal 500 UK 2021). Merrill April is “fast-thinking, forward-thinking and responsive” (Legal 500 UK 2021).