Directors and senior executives negotiating an exit factsheet
Increasingly, organisations are recognising that their most valuable assets are their employees. Productivity, reputation and competitive edge can all be affected by the way a workforce is treated, and by the way an organisation is perceived to be dealing with employment issues and organisational change.
When new directors or senior executives are taken on, it is therefore important that a service agreement (otherwise known as a contract of service or contract of employment) is entered into, preferably at the start of a director`s employment, and that it is carefully thought out. An employer can otherwise find itself in a situation where a departing director is awarded an excessive severance agreement, for example because no notice period has been included in a fixed term contract, even when the termination is for cause. Or it could be forced to consider commencing disciplinary proceedings because a dispute over the terms of the director`s employment has arisen, for instance regarding whether he can or cannot be concerned with other organisations, and to what extent. This is likely to inflame the situation and, in the case of directors of listed companies, trigger reporting obligations. This may also lead to adverse publicity and affect the director`s professional reputation. He might therefore feel compelled to litigate to clear his name and this can be expensive and time consuming for all concerned.