After takeover: manage unwanted staff
- John Deane
- Updated: Mon, 21st Nov 2016
It’s a familiar situation. You have taken over a company or business perhaps after a management buy-in or as venture capital / entrepreneur. The senior management of the business that is still in place is no longer wanted – and quite possibly contributed to the reason why the business was sold in the first place. Can you just fire them? What is it likely to cost?
There are two main issues: wrongful dismissal – i.e. breach of contract – and unfair dismissal. The first is straightforward – provided you give the employee proper notice (or you have some actual grounds for summary dismissal, which is less likely) – there is not a problem. You may need to be careful about making a payment in lieu of notice to get the employee out immediately. This can have tax consequences and other problems (for example making a restrictive covenant ineffective) if done wrongly, so it is always wise to take advice.
The bigger problem, though, is likely to be unfair dismissal. First, check the length of service of each targeted employee. If less than 2 years (minus one week), then the answer probably is just to dismiss them with no procedure necessary, as they do not have unfair dismissal protection. Check these details as early as possible – preferably during due diligence before the takeover. You may need to act very quickly.
If this easier route is not available, you will need to find a fair reason for dismissal. There are five possibilities: capability, misconduct, redundancy, unfair dismissal and some other substantial reason (SOSR). We can ignore misconduct (unless there actually is some behaviour that would justify dismissal) and illegality (although you must check that the business has been complying with immigration rules by checking the right to work in the UK regularly).
This leaves capability, redundancy and SOSR. You might think the obvious answer is redundancy. However, while this is fine if you want to axe a position entirely, it is a problem when you want to replace like with like. For example, the Finance Director has to go. But you’re still going to need a Finance Director – so no redundancy. It might be possible to reorganise or amalgamate several posts into fewer, or even one. This could then allow a redundancy exercise and you are likely to be able to work it so that you can recruit from outside to fill the new role(s). Caution: it is essential to go through a fair procedure so that the employees can not say that the procedure was a sham and preordained. Dismissing employees with less than 2 years service summarily, as above, might be OK for them, but could give others in a similar position but with longer service the argument that the summary dismissals show that the exercise was a sham. It might therefore be necessary to bring them into the redundancy exercise anyway.
Capability can be problematic too. Just because the employee’s face doesn’t fit, it doesn’t necessarily mean that they are so poor as to be fired on capability grounds. A proper capability procedure will take several weeks if not months, to be fair, and this timing is often unacceptable.
So what about SOSR? If it works, this can be an excellent solution. There are no fixed rules as to what can be good reason under SOSR but management reorganisations can count. In one case, for example, there was a management buy-in, but the incumbent MD was not involved. He was dismissed fairly, under SOSR, because the tribunal agreed that it was intolerable for the new management team not to be able to manage the business themselves and be stuck with the old MD. However, each case will be different and will need careful consideration before action. If SOSR is applicable though, it is very quick as it does not need the extended capability procedure or even the shorter redundancy consultation (although some consultation would probably be needed).
In summary, having taken over the business there probably are ways to clear out the dead wood and get the management team that you need. Sometimes it is commercially necessary just to do it quickly and risk claims being made later. However, a bit of thought, care and planning can often put you in a much more defensible position, without necessarily taking much more time if any. It is essential, however, to do the planning before taking any steps (click here) for more information.
Alex Kleanthous is a partner in our London dispute resolution team and regularly advises employees and employers on employment issues. If you have any questions or queries then please do not hesitate to contact him.