Termination of employment

We provide strategic tactical advice to employers dealing with termination of employment.  We plan with employers how to reduce the risks, costs and disruption to the business.

We do provide cost estimates before starting work.  Please do give us a call to discuss your situation.

By planning together, we reduce your risks when terminating an employment contract. This includes

• Required processes;
• Nature and extent of any investigations;
• Employee’s appeals;
• Termination requirements.

Help with difficult termination of employment cases

Typical “difficult”  cases include:

• Prolonged sickness or absence:  Employers need to be careful to avoid claims under the Disability Discrimination Act.
• Preserving the duty of confidentiality after the employment has terminated.
• Dealing with tax free payments under the settlement agreement.
• If a director resigns his office at Companies House he will remain as an employee unless the director’s service agreement says otherwise. This may not be what is intended.
• Bonus payments.
• Dealing with shares and options – see below.
• Helping employers to avoid unfair dismissal, wrongful dismissal or discrimination claims.
• Redundancy processes including selection criteria.

As process is so important when considering employment termination, careful planning and consideration is required. A mistake in process or in a letter to an employee can prove very costly. We can advise and assist at all stages whether at the beginning of a disciplinary process or grievance right through to an appropriate final letter to the employee terminating employment.

Shares and options on employment termination

Whilst we advise a wide range of employers on all aspects of terminating employment, many of our clients need advice on complex issues arising with senior employees, employees who are also directors or senior executives with valuable contract rights such as bonuses, shares or share options.

There is no requirement to transfer shares or relinquish option rights unless expressly provided in the articles, shareholders’ agreement or employee share award documentation.  If the employer strikes an agreement with the employee or director on termination of employment this should be recorded in a separate agreement.

Mixing capital payments with income payments is not a good idea from a tax perspective. Share based payments should not be dealt with in a settlement agreement. This is because payments made on share transactions can be brought within the capital gains tax regime which carries a much lower rate of tax.

Dealing with shares on termination of employment

The share purchase agreement can be entered into at the same time as the settlement agreement so that everything connected to termination of employment is wrapped up at the same time.

In public companies determining the value of shares is usually not controversial as the share price is in the public domain.  However, in private companies the value of shares is usually up for negotiation.  There are many ways to approach valuation each of which will depend upon the individual circumstances.  Private companies can take advantage of the ability to buy back shares from an employee or a directors which can be tax efficient.

Any gain made by the director or employee is usually subject to capital gains tax.  If the conditions are satisfied Business Assets Disposal Relief (entrepreneurs relief) will apply.

Share options on termination of employment 

The position varies depending upon the reasons for termination of employment and the nature of the option. Different rules apply for each of unapproved options, HMRC approved option plans or EMI options.  The rights applicable on termination of employment are usually detailed in the scheme rules.