Senior Employees and Settlement Agreements

Settlement agreements for senior employees, such as directors and senior executives, generally vary from other forms of settlement agreements. This is due to the fact that additional factors need to be negotiated and agreed with their employers. It is therefore essential that legal advice is sought when drafting and negotiating the terms of the settlement agreement for senior employees.

Certain factors which are often involved in Senior Employee settlement agreements are explained below.

Restrictive Covenants

Senior employees will have regular access to confidential knowledge. Evidently, employers are wary of the risk that they may use this information to directly compete with, or even steal former colleagues, contacts or clients, from them. Although contracts of employment often contain covenants which protect employers against this threat these may no longer be enforceable if the contract has been breached. One benefit of creating a settlement agreement is that it provides an opportunity for an employer to re-impose, or even amend, these covenants which may consequently need to be met with additional compensation from the former employer. Legal advice must be sought to determine the reasonableness of the restrictive covenants and the compensation offered.

Share Options

Senior employees often will have share options which they have not yet exercised. Additionally, if the share options have been exercised, the shares may need to be transferred back after the negotiation and acceptance of a fair price for them. These must be dealt with under a settlement agreement in addition to any tax considerations there may be.

Company Property

More often than not, senior employees have the benefit of being provided with company property such as a company car, laptop, tablet or a mobile phone. On termination of employment, these are usually returned by a certain date, but there may be the option of negotiating these details when determining the terms of the settlement agreement.

Announcements and References

Announcements to the workforce or the market regarding an employee’s termination of employment and references from the employer are vital components of a senior employees’ termination of employment. This is due to the fact they have an immense impact on the reputation of both the employer and the employee. Both announcements and references need to be included in settlement agreements and it is therefore advised that careful consideration is given to the wording of these during negotiation. This is especially applicable in the financial services industry as employers are under various duties to disclose all relevant information.

Retirement as Director/Loss of Office

Directorship and offices do not cease at the time as a senior employee’s employment termination. On the other hand, it is normal process for a Director to agree to resign on termination of the directorship. Settlement agreements address this issue by outlining any compensation that has been agreed between the employee and employer.

Garden Leave

Due to the prominence of senior employees within the company and their access for confidential information, employers may decide to place employees on garden leave for some or all of their notice period. The employee still receives all of their benefits, as if they were at work, but there may be certain restrictions on the employee’s access to the employer’s premises and contact with former colleagues.

These extra considerations for senior employee settlement agreements means that it is particularly important that the terms, negotiations and agreements are crystal clear to ensure that there are no detrimental repercussions.

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