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Five Common Questions from Senior Executives in the Current Climate

2020 has seen unprecedented disruptions to employment and while all are feeling the impact, senior executives in particular have noticed specific adverse impacts in their employment. Some of these impacts have arisen as a result of the COVID-19 crisis, others have been accelerated by it, and some matters which would have taken place in any event now represent an increased burden on executives as a result of being actioned during the pandemic.

In this alert, we will be looking at five questions that we are commonly being asked by our senior executive clients.

1. How do I protect my equity interest if I am being asked to leave?

When a senior executive or partner is facing an exit from the workplace, a pivotal concern will often be seeking to ensure that they are classified as a good leaver under the equity documents, such as a carried interest or share incentive scheme. Many equity documents do provide that a senior executive who has been made redundant will be deemed to be a good leaver, but few treat constructive dismissal as a good leaver event; therefore good leaver treatment may need to be negotiated as part of the exit package.

Senior executives in this situation also need to look ahead and consider how their equity could be adversely affected after their employment has ended. It is vital to consider their ongoing post termination obligations under the equity documents (such as restrictive covenants, non-disparagement provisions, confidentiality provisions), breach of which could result in bad leaver treatment or clawback of equity.

Aside from purely financial considerations, a departing senior executive will be mindful that the job market is likely to be more difficult in the current climate and will be looking to maximise their employment opportunities. Where an executive is being made redundant, there may be scope to negotiate release from some restrictions (e.g. non-compete) so that they can continue to make a living whilst also retaining their equity.

2. What can I do if my discretionary pay has been reduced or withheld?

Many senior executives have remuneration provisions which stipulate that a portion of their remuneration, such as their bonus, is discretionary. In the current climate, many executives are finding that this provision is being exercised to their disadvantage. Discretionary payments particularly affect partners, where the ability to exercise discretion to make payments is a staple in partnership agreements; but is also highly relevant in financial services where malus and clawback are additional factors.

Whilst the exercise of discretion is by its nature a difficult issue to challenge, recent case law including Braganza has provided some additional guidance regarding such exercise, namely that a discretion cannot be exercised in a manner which is arbitrary, capricious or irrational. Long before litigation is contemplated, there are steps senior executives can take to gain information relevant to a potential challenge, both under the Equality Act if discriminatory pay practices are suspected and by use of the Data Protection legislation, including data subject access requests. As a result, we have found that executives may now have increased leverage when internally challenging what appears to be an unfair exercise of the discretion.

3. How do I protect myself if my Company is proposing or implementing a restructure?

In struggling to keep their businesses afloat, some companies have been forced to undertake a restructure of their operations. Whilst this can sometimes involve redundancies, there may be more subtle changes introduced. For a senior executive who has shaped their career in a particular direction, suddenly having certain parts of their role removed, or additional duties added as part of a restructure can have significant adverse impacts on their career, even if it is not envisaged that they would suffer any reduction in salary as a result of such changes.

In these uncertain times, consideration may need to be given as to how to handle such developments. We have been advising executives not only in relation to raising grievances and potential constructive dismissal issues but also more nuanced solutions and tactics including what action they can take as a result.

4. How do I report concerns about the physical and mental wellbeing of myself and others?

The wellbeing of employees and partners has unsurprisingly come to the fore in recent times. Aside from the obvious potential impacts which COVID-19 may have on one’s physical wellbeing, the possible adverse impacts on mental wellbeing are substantial and multifaceted. Issues such as employee isolation, increased workloads due to the redundancy or furloughing of colleagues, and anxiety regarding health concerns are affecting employees in every sector. Senior executives are often required to manage the wellbeing of employees who report to them, whilst trying to balance their own wellbeing in circumstances where there may be an absence of any clear avenue for them to follow to address concerns regarding their own personal situation.

Employers have a duty of care to ensure the health, safety and welfare of their staff and have obligations under health and safety legislation, as well as equality legislation (particularly as regards known disabilities). Employees have a right not to be dismissed or suffer a detriment as a result of raising health and safety concerns and in severe cases may also be able to bring a personal injury claim. We have advised on all these matters and including with issues of confidentiality around medical records and sensitive personal data and the use of referrals to specialist occupational health experts.

5. How should I deal with allegations of wrongdoing and investigations?

Allegations of employee wrongdoing are not a new occurrence; however, how these allegations are addressed has, by necessity, altered in the current climate. A senior executive, particularly one who is regulated, will be mindful of the potentially devastating consequences which allegations of wrongdoing and subsequent adverse findings may have on their future. Another concern at the present time is that such allegations may be relied upon to exit a senior executive and seek to absolve the company of its responsibility to pay compensation, during a time when businesses are increasingly cost conscious.

In circumstances where large numbers of employees are working from home, the practical difficulties of responding to allegations and participating in an investigation should not be underestimated. For example, access to materials required for an investigation – such as hard copies of documents – may be curtailed. A senior executive who is either required to investigate allegations of wrongdoing in the current climate, or who is subject to an investigation into alleged wrongdoing, should be aware of the particular challenges of virtual investigations and disciplinary processes, and must tailor their legal and strategic approach to them accordingly.

We have a depth of experience and a wealth of materials we have developed to support senior executives with all of the issues raised in this alert. If you would like to discuss any of these issues further, or for guidance on your specific rights, responsibilities and potential liabilities, please contact Merrill April (Partner) who specialises in employment and partnership law and Zulon Begum (Partner) who specialises in corporate and partnership law issues for multi-national employers, senior executives, firms and partners.