COVID-19 EXPERT LEGAL INSIGHTS

Redundancy because of COVID-19 -
top 10 tips for senior executives
negotiating an exit

18 May 2020

Coronavirus (COVID-19) is having an undeniably serious impact on businesses and the global economy. Everyone has been affected in some way.  Sadly, the looming financial crash means that many businesses have been impacted to the extent that they will have to put cost-cutting measures in place in the near and mid-term future.  For some individuals this will result in their role being put at risk of redundancy. 


When senior managers are made redundant, there is typically no redundancy process and very little consultation. However, they frequently result in the offer of a severance package in exchange for signing a settlement agreement. 

Below is a list of top ten tips, setting out what key factors you should consider and what steps you should take, in order to protect your position and maximise your severance package, if you are a senior executive at risk of redundancy:

Furlough?

  • Are you being put at risk of redundancy when the Government Job Retention Scheme is still available?
  • If so, you can challenge your employer by questioning whether redundancy can ever be said to be fair when there is a scheme available with the purpose of avoiding this situation, but which they are failing to make use of. Arguably, to make an employee who is eligible for furlough leave redundant, rather than to put them on furlough leave, is premature and a breach of the implied term of mutual trust and confidence, rendering the decision unfair. 
  • Are other members of staff at your business being put on furlough leave?
  • If so, ask your employer what is the reason why you haven’t been considered for this scheme?

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Genuine redundancy or alternative underlying reason

As part of the redundancy consultation process, you have the right to ask questions about the reasons for the proposed redundancy, the justification for it and alternative measures that have been considered in order to avoid it (please see my blog ‘Alternatives to redundancies’ for further insights).  During this exercise it is important to gather information in order to determine whether this is a genuine redundancy situation in line with the statutory definition, or an attempt to disguise an ulterior motive for termination of employment such as poor performance or misconduct.    

If it is a ‘sham redundancy’ then, depending on the real reason for the dismissal, you might have grounds to bring a claim, such as unfair dismissal, discrimination or whistleblowing.  

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Levers to increase/maximise settlement?

Consider whether you have any levers you can use to negotiate a higher severance package.  For example, have you previously raised a grievance or blown the whistle, and is your employment being terminated because of this? Have you been selected for redundancy for a discriminatory reason, such as because of your age, sex, sexual orientation, gender reassignment, pregnancy/maternity, disability, race, religion or belief or marriage or civil partnership?  If so, then you have potentially valuable claims which should not be compromised without significant financial recompense.

Additionally, if the redundancy is a cloak for another reason for dismissal, then this should be factored into your negotiations.  For example, a fair dismissal for poor performance involves a much longer termination process than a redundancy exit, during which time you would continue to accrue salary, annual leave, bonus, equity and benefits.  This loss should be factored into a settlement negotiation. 

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Administration risk

Is there a risk that your employer is going to go into administration? If so, you should negotiate an accelerated payment date for any payments due to you under the terms of the settlement agreement, and ensure this is clearly recorded in any settlement agreement, in order to increase the chance of securing your payments. 

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Negotiate your notice period

Check the length of your notice period in your employment contract/service agreement and consider whether your preference would be to work it, go on garden leave or receive a payment in lieu of notice.  Given the current job market is not buoyant, going on garden leave is likely to be attractive, as it buys you time to find a new role from within employment and in most cases the period of your restrictive covenants will be run down from the start of your garden leave period rather than your termination date.

If you are likely to find a new role quickly, you might prefer to receive a payment in lieu of notice which would enable you to start your new role immediately.

Where flexibility is required, it might be favourable to agree to go on garden leave with the option of bringing forward the termination date and receiving a payment in lieu of notice in respect of the remainder of your notice period (including payments in respect of any accrued but untaken holiday and benefits).

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Restrictive covenants

Does your employment contract/service agreement contain restrictive covenants? Are they onerous or reasonable? Consider whether there is scope to negotiate a shorter restrictive period, to narrow the wording of the restrictions or for your employer to waive them in part or full.

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Equity

Review your Equity Plan Rules to ensure you understand what happens to your stake on termination as a result of redundancy. Are you a good leaver? Is there scope to negotiate your position, or to gain assurance that the Remuneration Committee will exercise their discretion in your favour? Ensure that you are clear on your position in relation to tax and notifications, and that anything agreed is clearly recorded in the settlement agreement.

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Bonus

Are you losing any entitlement to receive a bonus as a result of the redundancy? Are the terms of the bonus rules being complied with? Can you negotiate a pro rata bonus payment in respect of the period you have worked? Can you negotiate a loss of bonus payment as part of the taxable element of the severance package?

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Return of property

The practical arrangements for return of company property (such as laptops, phones and cars) is not straightforward under the current circumstances. Ensure you make arrangements with your employer which are safe and in line with government guidance.  The provisions of any standard terms of a settlement agreement will need to be updated to reflect those arrangements.

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Internal and external Announcements

Negotiate the wording of internal and external announcements, in order to protect your reputation.  Ensure those announcements are annexed to any settlement agreement and that there is a provision in the agreement to ensure your employer will not derogate from the agreed messaging.

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In summary, there are many important considerations for senior executives when facing a potential redundancy and negotiating a severance package.  We have a wealth of experience in negotiating exits, particularly in professional and financial services, and can advise and support you in order to safeguard your future.

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