The Employment Law Pod

When the CEO must go: Legal considerations and practical strategies

• Boyes Turner

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Exiting a CEO or senior executive is rarely straightforward. In this episode of the Employment Law Pod, Partners Andrew Whiteaker and Helen Goss unpack the legal and commercial challenges of removing a senior leader. They explore how to handle service agreements, shareholder disputes, restrictive covenants, and whether garden leave or settlement is the best option.

In the second half of the episode, the focus shifts to workplace culture, with a deep dive into Lidl’s recent agreement with the Equality and Human Rights Commission (EHRC), highlighting new employer obligations around preventing workplace sexual harassment.

Packed with practical insights, this episode is essential listening for HR professionals, business leaders, and anyone involved in managing senior exits or safeguarding workplace culture.

Subscribe to the Employment Law Pod for expert insights that blend legal precision with practical business guidance. 

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Andrew Whiteaker: 0:04 

Hello and welcome to the Employment Law Pod from Boyes Turner. My name's Andy Whittaker, I'm a Partner in the employment team at the firm and I'm very pleased to say that, as ever, I am joined by my colleague, Helen Goss. Hello everybody, and on the Employment Law Pod, we like to have a look at interesting things that are in the news, whether they are recently reported cases, pieces of legislation moving through Parliament or just little fun stories that we've read that we think have an interesting slant on all things employment law. 

So, with having said that, Helen, what are we going to talk about today? 

Helen Goss: 0:37 

Well, Andy, we're going to talk about the preparatory steps that we need to look at if we're planning to dismiss a senior executive board member director. So, a senior person in the business. 

Andrew Whiteaker: 0:49 

And this is something we get asked about all the time, do you know? 

Helen Goss: 0:52 

what A lot. Yeah, from our casebook, if you like no a lot, and then the story of little sexual harassment in the EHRC. 

Andrew Whiteaker: 1:01 

Yes, absolutely, which has just been in the news, so we'll be talking about that shortly. And the EHRC yes, absolutely, which has just been in the news, so we'll be talking about that shortly. So, to start off with, we're going to be talking about senior executives and how we might go about exiting them from a business. 

Helen Goss: 1:10 

Thanks, Andy. As you said before, we do this on behalf of clients working with them to exit quite often a board member, a director of the business and it's a pretty complex process because we've got to think about A the legal steps that we need to take, but also other issues in relation to how we're going to manage the comms, what's going to happen with the business going forward, reputational issues, etc. 

Andrew Whiteaker: 1:41 

Yeah, and also, as tends to be the case in almost everything that we deal with, there's a technically legally correct process to follow, and then there are also commercial decisions or commercial factors that we need to take into consideration that might impact upon a chosen route. 

Helen Goss: 1:57 

Yes, exactly. So once you've decided that you want, well, we’re gonna. I'm just going to talk about the CEO yes, as an example. 

Helen Goss: 2:07 

So once you've decided that the CEO is going to have to go, then, as I said before, there are a number of tactical issues as well as the legal issues, because there's going to be a big impact on the business with a figurehead like the CEO exiting the business. So you need to look at how you're going to deal with any potential disruption and how is that going to be minimised. How are you going to communicate that to other senior people in the business, but also the workforce in general? 

Andrew Whiteaker: 2:39 

And potential externally as well to clients in the industry. Very important. 

Helen Goss: 2:43 

The messaging internally, but also into the marketplace, is very important. And then how you're going to do it, what you're going to pay to do it, etc. Etc. So I think probably once you've decided that this CEO, this mythical CEO, is going, then you've got to work out what's. What is the reason, why is this person going? And there's a multitude of reasons- yeah, absolutely, and and. 

Andrew Whiteaker: 3:14 

We would want to see if we can identify a potentially fair reason to terminate their employment. But sometimes a fair reason that might stand up to scrutiny at the employment tribunal might not exist, but it might be just the decisions being made that it is time to move on and that we need a fresh pair of eyes, or whatever it might be, to actually get involved in the process. 

Helen Goss: 3:36 

Yes, exactly, there's all sorts of reasons, Andy. I mean, very often it's because the business is not performing, and so very often the CEO is going to be held responsible for the non-performance of the business. It might be at the request of investors we see that quite often, don't we? It might be this idea that the business has moved on and it's time for a change. The business needs some new blood. It might be a breakdown in the relationship with the board. Again, we see both of those reasons. 

Helen Goss: 4:10 

Or it might be that the business has got to a certain point and it needs a different skill set, a different type of expertise going forward for the growth of the business. And then, not so often but sometimes and in fact we have got a case, or in fact a couple of cases at the moment, where it's due to the conduct of the CEO, which actually potentially amounts to gross misconduct. So a very different set of situations. So, if you think about the risks, I mean we have got, if we're going to embark on this process, quite a few possible claims, particularly when you think that a CEO is going to be an employee. Yes, so he's got the status of employee. He's more likely than not going to be a director at a company's house? Yeah, and then also very likely he's going to be a shareholder. 

Andrew Whiteaker: 5:06 

Yeah, absolutely, and all of those three separate status will attract different rights and obligations. 

Helen Goss: 5:13 

Yes, exactly so. As an employee, then we have the usual bank of claims in terms of unfair dismissal, discrimination, breach of contract, potential whistleblowing, depending on the circumstances, where the CEO is a shareholder, then obviously that shareholding needs to be dealt with as part of that exit, whatever the decision is as to how it's going to be dealt with. But there is also the issue of unfair prejudice to a minority shareholder which is is a potential risk. 

Helen Goss: 5:48 

I think probably less of a risk in respect of a director, because normally it's the obligations go the other way around, don't they? 

Andrew Whiteaker: 5:55 

to the director yes, yeah, I think, and I think the employment rights point is an interesting one actually, because we've touched on it already, haven't we? About the need ordinarily to try and find a fair reason to terminate someone's employment, and we know that under their contract of employment they'll have an entitlement to receive notice of dismissal, whatever that notice might be. But even if we give them the correct notice, in order for that dismissal to be fair, we'd need to follow a fair process and we'd need to identify a potentially fair reason. But sometimes, with the really high earners, we might decide that we don't really care so much. 

Helen Goss: 6:34 

Actually, it's very often the car park conversation, isn't it? So it's, it's the off the record conversation, but I I will just talk about that a bit later but I really wanted to talk about gathering information and making sure that you've got all the relevant documentation before you start this process. 

Andrew Whiteaker: 6:53 

Yeah, absolutely, and I mentioned employment contract. That's a key one to start with. 

Helen Goss: 6:56 

Absolutely. You've got to look at the employment contract, which is usually called the service agreement. With a more senior individual, there's very likely going to be a shareholders agreement if that individual is a shareholder, because that will normally deal with what happens on a termination and will also have perhaps different ways of dealing with it depending on the reason for the termination. The articles of association you're going to need those because that again adds a little bit of a rule book as to how to approach these situations and can also help with determining who has authority to make decisions about terminating senior individuals. The CEO may have share option schemes or long-term LTIPs. So again you need to look at the documentation around that, around bonus schemes, because in all of those there will be potentially good lever, bad lever provisions. 

Andrew Whiteaker: 7:58 

And even with those it's not always as clear cut is it? 

Andrew Whiteaker: 8:01 

Because we can sometimes have situations where we might want to agree an exit package with an individual but because of the particular way that their employment has been terminated, they might represent a bad lever for the purposes of the scheme. But we might want to do something for the individual to soften the blow or to provide them some sort of additional benefit, allow them to have their shares for an extended period or allow them to exercise some that are unvested. But that might not be within our gift actually, because the rules of the scheme might say that that's not a decision that we can potentially make, as in the board or the company, it might be some trustees that have to make that decision. It can be very complicated. 

Helen Goss: 8:48 

You have investors who may not be actually working in the business. So and you can't start making decisions until you know exactly what the position is. And it is so important to make sure you gather as much information as you can in advance so that then, whatever proposal you go to the CEO with, then you know what you're offering and you can almost look ahead to see what obstacles or issues that he or she may raise when this conversation because it's never really going to be a nice conversation to to have with that individual. You also need to determine whether the individual that we're proposing to exit is a director and actually registered as a director at company's house, i.e. a statutory director, or whether he or she has the title of director but is not actually a director, because ultimately we are going to want that person to resign and if they won't resign, then we have to follow the procedure to actually remove them as a director. 

Andrew Whiteaker: 9:59 

Yeah, and there are mechanisms available under corporate law to remove someone in those circumstances, and there might also be provisions expressly set out in the articles or shareholders agreements or something like that for how it comes about. But clearly it'd be much smoother and easier if the individual were to consent to that rather than for you to have to go through those processes. 

Helen Goss: 10:19 

Yes, and I think generally, more often than not, that is what happens, because someone's not really going to want to be a director if they don't have other protections in the business. Exactly so much will depend on the reason for the dismissal. So I'm going to just look briefly at what happens next. If we are doing gross misconduct and it's not so usual, but unfortunately it's usual enough for me to think that perhaps we should just talk about that a little bit, because it's quite a serious step to take to dismiss a very senior executive in our example of the CEO for gross misconduct, because it's quite a devastating thing to happen for the business. So you're going to have to have a think about, if you are going to sack someone for gross misconduct, the impact on notice pay, because they won't be entitled to notice pay. 

Helen Goss: 11:22 

If it is a summary dismissal, you need to consider whether there's going to be suspension of that individual because again that's quite a serious move to make because people will notice if the ceo in our example is not there. Again there will be an impact on the good lever, bad lever provisions in whether that's the shareholders agreement, l tip, stock options etc. So again, have a think about that. Very important to look at the messaging internally and externally, particularly if it goes forward as an actual dismissal and there's no deal done internally. Before you get to that stage, I think confidentiality is supremely important, whether it's a car park conversation or a more formal process, a for the individual, but also for the business going forward. 

Andrew Whiteaker: 12:19 

So stress that and I think confidentiality is in is an interesting point as well in respect of risk management, and what I mean by that is that you know, I've had cases in the past where a senior executive has been accused of some foolish and sometimes unpleasant actions and an employer decides well they, we've got to remove them, they can't stay in post as a result of these things that have occurred and we might, as we've already alluded to, maybe run roughshod over process because we just need to remove them now. 

Andrew Whiteaker: 12:52 

There is a risk in doing that because that might give the ability for an individual to pursue a claim against you because you say, well, I don't think you followed the right process in doing this, but fine. But do we think that the senior executive is really wanting to pursue a claim in the open public employment tribunal saying it's outrageous that my employer dismissed me in the way that they did because I did these things? Yes, you know? Is the individual really going to want to sue and make all of that public? Yes, and be judged and how that might impact upon their reputation going forward? 

Helen Goss: 13:26 

Yes, and of course, that's what a lot of companies bank on, that the individual isn't going to want to do that because the reputational issues for that individual going forward are huge, really, aren't they? 

Andrew Whiteaker: 13:37 

Absolutely so you might be willing to take more risks or follow a process that wouldn't stand up to particularly close scrutiny, because actually we just don't think they would have the stomach to pursue us over issues like this. We just don't think they would have the stomach to pursue us over issues like this. 

Helen Goss: 13:51 

Exactly so. That's why the majority of these situations are dealt with an off-the-record conversation, a car park conversation, a without prejudice discussion. That's how the majority of these situations are dealt with, because both the business and probably the individual are not going to want this stuff out in an open forum, even if it's just that the investor didn't want you there or your face didn't fit anymore, or a poor performance issue. 

Andrew Whiteaker: 14:24 

Yes, and so I think that's right. I think that as a result, a lot of things are resolved by way of, you say, a sort of without prejudice, off the record discussion. But in my experience also, sometimes businesses just fire and then they say we'll have a conversation later. Yes, because if you leave someone in the business, if you flag up to them that you want to have a conversation with them about their departure, then things can get very complicated and very messy because they might choose to go off sick or raise a grievance or do all kinds of things. 

Andrew Whiteaker: 14:54 

So sometimes businesses just decide we're just going to depart and then we'll have the conversation well, exactly, or what normally happens, is that you have the conversation, and the conversation might suggest a negotiation and a discussion, but usually ends with well, your employment is now terminated with effect from today yeah, so there might be a myriad different factors as to exactly how you might run the process, but, yeah, it can result in that, without prejudice discussion to see if an agreement can be reached, or it could just be you're fired off, you go and here is an offer if you're interested? 

Helen Goss: 15:32 

yes, and obviously that offer needs to be recorded in writing so that that individual can go off and get some legal advice. Sometimes it's easy to hand it over, actually, in a settlement agreement that you've prepared earlier, again, some of the points to consider, so a dismissal like this will be on notice. So are you going to want to allow that individual to stay employed for what might easily be six or twelve months? I, I would guess probably not. In fact, I can't think of a situation where we would think that that was a good idea, unless perhaps we were concerned about them being out in the marketplace and their restrictive covenants. 

Andrew Whiteaker: 16:15 

Yeah. So I think if you were going to do that, you'd probably look at garden leave instead. 

Helen Goss: 16:20 

Oh, definitely, rather than having them work. 

Andrew Whiteaker: 16:22 

You'd maybe put them on garden leave. 

Helen Goss: 16:25 

But a pylon is probably going to be the better route in this situation. And then again you've got to look and see what's going to happen to the shareholding. Are you going to leave the shares with the individual? What does the shareholders agreement say? What does any other document that you may have actually say? Or are you going to value the shares and attempt to purchase those shares or get them transferred to somebody else? But these are things that you should have considered in advance of that conversation with the individual. Restrictive covenants is quite an interesting one, because it's more likely than not that this individual will have some restrictive covenants in his or her contract. So make sure that you've understood exactly what those are. And, given that individual's risk in the marketplace, is it better that they are on garden leave for the period of their notice or actually are you prepared to let them go but remind them about the restricted covenants and watch and see that they don't breach them going forward? 

Andrew Whiteaker: 17:32 

Yeah, and you want to be careful as well in the way that you terminate, because what you don't want is to breach the contract, meaning that then they are potentially released from their restrictive covenants as well. So, as much as we were saying, you might take a slightly cavalier attitude to the process that you follow. What you don't want is to be in a situation where you've breached the contract and therefore they're now free to compete and do all the things that you otherwise wouldn't want them to do exactly. 

Helen Goss: 17:56 

And then just a few scary thoughts which, unfortunately, we do need to think about. Is that once you have that conversation with the individual, then pandora's box is open, really, isn't it? 

Andrew Whiteaker: 18:08 

yeah, and that's why I was saying that often. You know you don't want to leave it. You might just say OK, well off, you go, and then we'll work from there. 

Helen Goss: 18:16 

Yeah, pandora's box is open and you cannot really close it, so a course of action will lead to a dismissal or a resignation at some point. Once you start having that conversation with a senior person, I think you've also got to be very clear who on the board is with you or not with you in relation to this, because the potential for there to be conflict in the board is quite significant. Obviously, if everyone is with you, then that is the best option, but if this could lead to a lot of problems if you're getting rid of a very senior person, and not everybody is in agreement. 

Helen Goss: 19:00 

So again, you need to check with your articles of association with your shareholders, agreement with the board and potentially other investors as to are you with me or are you not? 

Andrew Whiteaker: 19:13 

with me, absolutely. 

Helen Goss: 19:15 

And then just one last point is a director is entitled to see any legal advice that is given to the business. So unless you want the legal advice that we may give in relation to a CEO or similar person's exit, then it may be better that the board members individually instruct and take advice from the lawyers yeah, or shareholders or someone like that, yeah exactly, yeah 

Andrew Whiteaker: 19:47 

yeah, I mean, it's like I said it's. It's. It's a very tricky one exiting a senior executive and sometimes you have an absolutely stone cold reason to do it and a very clear process that you can follow, because it's an easy dismissal to justify and in other circumstances, like you've outlined, you just don't. But that's not necessarily a reason not to do it. If a business decides commercially that we have to take this step and we have to say goodbye to this individual, it comes with a bunch of risks, but there are ways of mitigating those risks and preparation. 

Andrew Whiteaker: 20:17 

Really yeah, absolutely, and mean that that's still the right thing to do and the lowest risk option to the business compared to retaining someone in post that you know, have confidence in. 

Helen Goss: 20:27 

Yeah, exactly, anyway, Andy, thank you so much for coming to the meeting. I know I sort of sprung it on you a little bit at the last moment, but I do have some concerns about your role going forward. So, in the words of Alan Sugar, you're fired right. 

Andrew Whiteaker: 20:43 

It's probably a good time to take a break, isn't it? So during the break, I issued an appeal. I'm pleased to say it was successful and, as a result, I've been reinstated just in time to talk about our second topic for today's podcast, and that is a recent agreement that was entered into. That has been entered into by the British arm of the supermarket chain Lidl with the equality quality and Human Rights Commission, the EHRC, and this deal has been entered into off the back of a 2023 Employment Tribunal case that actually dealt with some incidents that took place a couple of years prior to that. 

Helen Goss: 21:23 

Yeah, so before the new legislation. Yeah, that's right. 

Andrew Whiteaker: 21:26 

And this was all to do with sexual harassment in the workplace. 

Andrew Whiteaker: 21:29 

Now, if you are an avid listener to our podcast and I'm sure everyone is you would know that there had been some changes to the law harassment taking place in the workplace on pain of a separate claim being pursued against the employer for that failure. So it has always been the case, or it's at least been the case under the equality act for since 2010, that an employer has had an obligation to protect its employees from sexual harassment. And if it were the case that a colleague were to have sexually harassed another colleague, then the employer may be vicariously liable for the actions of that second individual. And it's possible for an employer to successfully defend such a claim and, if you like, put all the blame and the responsibility on the harasser if it was possible to demonstrate that they'd taken all reasonable steps to prevent that harassment from taking place to begin with. So by way of providing training policies, engagement with staff, disciplining where appropriate, all those sort of things that you might expect an employer to do and which generally employers did do they yes to varying levels. 

Andrew Whiteaker: 22:54 

Employers would endeavour to do that, but at the same time it's often it was. It was often very difficult to successfully run that statutory defence in the tribunal because of missing training records or people not attending the session on that day or policies not having been reviewed for 10 years or something like that all of the above? 

Andrew Whiteaker: 23:12 

yeah, I'm not tiring all employers with the same brush. But it's not uncommon for it to prove impractical to run that claim because of missing evidence or not being able to demonstrate the the steps that an employer has taken. So that's always been there. But the new piece of legislation was around, there being now a separate claim. So in addition to the employer being liable for the acts of the harasser, now the victim can bring a claim against the employer for also having failed to take those reasonable steps. 

Helen Goss: 23:44 

And to protect that individual yes, exactly so. 

Andrew Whiteaker: 23:48 

So it's a new claim that was introduced as of October last year, and this has produced a flurry of activity and many businesses have been recognizing the added obligations and onus on them to be able to demonstrate the steps that they're taking to avoid liabilities in these circumstances, and it's something we've been very actively involved in supporting our clients with. So we've been very actively involved in supporting our clients with, so we've been working. Particularly, our colleague, Claire Taylor Evans, another partner in our team, has spearheaded our approach to this in assisting clients by putting together lawyer-led risk assessments to identify areas where, or circumstances or events, or whatever it might be, where there are heightened risk of sexual harassment taking place. 

Helen Goss: 24:34 

And that's very often where there are a lot of third parties involved, so, for example, in the hospitality sector. 

Andrew Whiteaker: 24:41 

Yeah, absolutely it can be that. Or it can be where you've got not lone working, but maybe where there's just a couple of people that work together on a shift. Or it could be social events that an employer sponsors. So there's a variety of different circumstances where you might see that there is a heightened risk of harassment taking place and then, having done that, putting together training sessions and events and documents and processes to again help mitigate those risks and enable an employer to demonstrate they have taken all of those reasonable steps. 

Helen Goss: 25:14 

It's almost a process of signposting, which I think employers have been a bit reluctant to do, in that they will put the sexual harassment policy, which inevitably did exist, into the respect at work policy yeah, absolutely, and people wouldn't necessarily know, and I think that was one of the factors in the little case but nobody knew where to find the relevant policies and, yes, you can call it the respect at work policy, as long as you add, and sexual harassment policy yeah, absolutely so. 

Andrew Whiteaker: 25:46 

so, yeah, so we've been doing a lot of work in this space over the last, over the last year or so, and to toot our own trumpet, because not everyone toots trumpets for other people, so we might as well toot our own. 

Helen Goss: 25:56 

We don't do it enough, do we, Andy? No, we don't do it enough. 

Andrew Whiteaker: 25:58 

But we've been nominated for the second year running for Employment Law Team of the Year by Personnel Today magazine, off the back of the work that we have been doing in this area. So you know, we're quite proud of that and it's obviously very appropriate, bearing in mind both the change in law and also cases such as the little one that we've seen reported on recently. And why is it being reported on now? Because, as I said, it's involving actions or omissions that took place in 2021. And it's a tribunal judgment that was entered into in 2023. 

Andrew Whiteaker: 26:29 

So why now? Why are we talking about this now? Well, we're talking about it now because of this agreement that's now binding agreement that's been entered into by Lidl and the EHRC. Now, this is known as a section 23 agreement and it can be issued in circumstances where the EHRC concludes that an organisation has previously breached the Equality Act and, in signing the agreement, lidl is committing to implementing additional measures to prevent sexual harassment from taking place on its premises, so presumably it's offering help and assistance because they've been shown to be wanting in that particular area. 

Andrew Whiteaker: 27:05 

Yeah, and Lidl had taken steps already in the intervening period, but now this is a formal agreement where Lidl is agreeing to, for example, carrying out staff surveys on their experiences of harassment, developing systems to monitor and analyse complaints that might be made, reviewing its formal complaint handling procedures, all of this kind of good stuff. So you're right on the one hand, it's providing assistance and support to an employer, which is a good thing, but on the other hand, we've said the word little quite a lot in the last few minutes while talking about this. 

Helen Goss: 27:40 

So not all publicity is good publicity no absolutely so. 

Andrew Whiteaker: 27:44 

It's a good example of how the law around sexual harassment has always had teeth. 

Andrew Whiteaker: 27:49 

As I said, it's been inexistent for a long time. 

Andrew Whiteaker: 27:52 

The obligations and the potential risks for an employer have been heightened as a result of the changes in law over the last year or so, but this action by the EHRC, and its publicity around it as well, is a stark reminder to employers that these obligations do exist. They do need to be taken seriously and in the event that they are not taken seriously, not only might you end up with successful tribunal claims being pursued against you, you may also be dealing with the fallout and the negative publicity that comes from that. Should the EHRC get involved and there be agreements entered into specifying steps that you have to take, because you have previously failed to take those steps, and you know Lidl's not the first, so there have been other companies Sainsbury's, for example, department of Work and Pensions even. Really, yes, absolutely so. There are a number of organizations that have, following negative findings in an employment tribunal, have ended up entering into these sorts of agreements, so it's not the sort of thing that you want to be having to deal with. 

Helen Goss: 28:55 

It's very similar to the name and shame that you get with people or businesses not paying national minimum wage. Really isn't it? 

Andrew Whiteaker: 29:02 

Yeah, it's that sort of thing and, like you said, you know this is the sort of publicity that you wish to avoid. So it's much better to to understand what your obligations are and to act on them now yes so that about wraps us up for today. 

Andrew Whiteaker: 29:18 

Fortunately, Helen, we've managed to get through the episode without firing each other, which is good news, always good news and it just remains for us to thank everyone for listening to the employment law pod. If you're interested in checking out any more episodes in this series, then please do go to the Boyes Turner website, or, alternatively, you can subscribe wherever you listen to your podcasts. Thanks again and goodbye.