Last month Matalan’s CCO exited after 2 years in the role. Earlier this month John Lewis’ commercial director having joined in 2021 and a few days later news came of Jigsaw’s CEO leaving after 15 months. Nor are the high profile goings and comings restricted to the UK industry. The news seems to be awash with departures both in UK fashion as well as overseas.
No doubt some will be leaving of their own accord, but for others there may have been a gentle – or, possibly, a less than gentle – shove. Whatever the circumstances, terminating the employment of a senior executive can be a challenging process, and this article examines the key legal and practical considerations that the business should be aware of.
Initial considerations
The first step will be to determine whether the executive has sufficient service (currently two years) to bring an unfair dismissal claim and whether there are any special considerations such as whether the executive is pregnant or has a disability. The next step is to identify the reason for the dismissal which may include performance, misconduct or some other substantial reason, such as a loss of trust and confidence in the executive. The reason for the dismissal will have an impact on the overall management of the exit process and the termination package.
It is also important to review the executive’s employment contract, associated documents and policies thoroughly to determine the contractual arrangements and obligations in place. This includes understanding the executive’s entitlement to notice (including the calculation of any payment in lieu), and the financial terms relating to a bonus, commission and any other incentive arrangements. The employment contract may also set out redundancy or severance arrangements. If the executive is a director of the Company, then consideration will need to be given to dealing with that appointment. By the same token, additional considerations will apply if the business is listed, or otherwise subject to a regulatory regime.
Practical and tactical considerations
This includes identifying the favoured timing of the dismissal for the business as well as the internal willingness to engage in any form of protracted process. It is often preferable to employers to avoid any drawn-out negotiations or termination procedures, especially in the context of executive terminations. Any potential public relations and business continuity-related issues should be addressed early, alongside the wider impact that the departure is likely to have on the executive. The personality and likely reaction by the relevant executive should be predicted where possible.
Devising the strategy for the termination
The above will inform the plan for approaching the termination. Typically, this will involve a discussion around the underlying reason for the dismissal leading to an ‘off the record’ conversation during which a package can be presented, subject to the executive entering into a settlement agreement. It is important that, in devising the strategy, account is taken of the following:
- Termination package and taxation implications
- Approach to presenting the package -The presentation of the termination package should occur off the record. This can be achieved by entering into a ‘protected conversation’ or, alternatively, by communicating on a ‘without prejudice’ basis where there is a dispute between the parties.
- Terms of the settlement agreement – Each settlement agreement must be tailored to the specific circumstances of the termination and (if appropriate) include confidentiality, intellectual property and restrictive covenants to ensure that the business is protected on an on-going basis.
- Legal risks –It is important to consider the legal risks, such as the potential for an unfair dismissal or some other claim, and ensure that these risks are mitigated as far as possible.
Summary
Executive terminations in the fashion industry can be complex and fraught with both legal and practical challenges. There is ‘no one size fits all approach’ to executive terminations in the industry, although careful preparation will be key, as well as making sure that the business is protected on an on-going basis and that the presentation of the departure to employees and other stakeholders is as favourable as possible.
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