Termination Arrangements: Top Ten Tips

Below we consider 10 points that should be considered prior to terminating someone’s employment.

1.      Reason.

Although it appears obvious to consider at the outset what is the reason for the dismissal, it is important to give this proper thought to ensure it is not unlawful or unfair. Certain dismissals are automatically unfair (e.g. dismissal on the grounds of pregnancy or whistleblowing) and there are 5 fair reasons for dismissal: Conduct, Capability, Redundancy, Statutory Restriction, or Some Other Substantial Reason (SOSR). The reason will then trigger the correct procedure that needs to be followed.

2.      Notice.

The amount of notice, contractual and statutory, needs to be considered before terminating an employment relationship. Considerations need to be given as to possible payments in lieu or garden leave and what the contract allows for. This then often triggers discussions over tax and NI payments too if part of a settlement agreement. It is important to give clear notice to ensure a clear Effective Date of Termination (EDT) –  the date when the employment ends.

“…an obviously necessary incident of the employment relationship (is) that the other party is notified in clear and unambiguous terms that the right to bring the contract to an end is being exercised, and how and when it is intended to operate” Geys.

3.      Annual Leave.

It is important to remember that employees accrue annual leave, and any outstanding annual leave on termination can be paid in lieu. Employees accrue annual leave even whilst off sick and sometimes this can be substantial for those on people on long term sick leave. Agreements can be made as to the use of this annual leave during notice periods and garden leave.

4.      Employer’s Property.

Often the contract provides for this but, in any event, arrangements should be made to ensure all employer’s property is returned, including pragmatic issues such as returning cars, passwords and keys.

5.      Deductions from Wages.

Has it been agreed what is/will be deducted from wages on termination? For example,  any excess annual leave, repayment of loans that have been agreed? A good starting point is that employees are entitled not to have their wages deducted without prior agreement.

6.      Post-Termination Restrictions.

Consider whether there are any post-termination restrictions and confidentiality clauses. If existing restrictions and covenants have been entered into, then on termination it is wise to remind them of their ongoing contractual obligations.

7.      Shares.

Ideally, where an employee holds shares there will be a shareholder agreement which sets out the rules on what happens on termination. This does need to be considered prior to any termination.

8.      Reference and Announcements.

What is going to be said to prospective employers, the internal business? Often this can be agreed between the parties so that it is to the advantage of both parties.

9.      Confidentiality/Non-Disclosure Agreements (NDAs).

There has been a lot of attention in the press about confidentiality or non-disclosure agreements. There are certain ongoing confidentiality obligations that are often included in employment contracts or may be implied through the employment relationship. It is possible to sign up to new confidentiality clauses on termination, so it is something worth considering.

10.  Continuing Benefits.

An initial consideration must be given into any continuing benefits especially where perhaps the dismissal is due to ill-health. If there is permanent health insurance (PHI) in place this must be identified early on as it may be dismissal is not advisable in the circumstances.

If you need advice on any employment matter,  including termination of employment, please contact Linda Wilson on 01730 268211 .