Senior executives looking to move jobs need to look think long and hard about contractual provisions as a new era dawns, writes Simon Gorham.
As UK workforces start to physically return to the workplace, there is much discussion about the use of hybrid working models and emergence of the four-day working week. While it may be too early to see if, or how, these working arrangements will lead to new contractual provisions for senior executives, some early trends are beginning to emerge.
War for talent: incentives dominate
It is clear that certain sectors are bouncing back strongly, and businesses in those sectors are fighting hard to retain and attract talent. Although those moving roles will naturally expect an increase in fixed compensation, people joining privately owned businesses in particular are pushing hard to maximise their variable compensation.
Detailed negotiations regarding stock, options and other long-term incentive arrangements are commonplace, especially in the technology sector, with vesting and holding periods in privately owned business typically being shorter than those that apply to listed businesses. And when it comes to good and bad leaver provisions, senior executives (and their advisers) are increasingly looking beyond traditional approaches.
A move to longer notice periods?
For senior executives, notice periods are the principal mechanism for providing financial protection on dismissal. Those joining businesses that are not subject to the UK Corporate Governance Code may want to consider negotiating notice periods of at least 12 months and up to 24 months. Alternatively, they could opt for notice periods that provide for greater comfort in the early years of the new role before reducing on a sliding scale over time.
Executive pay
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This approach might be appropriate where the senior executive had been lured by the promise of “jam tomorrow”, for example, where the business has plans to list on a stock market and they will therefore want to know they will be employed long enough to secure the financial benefit. Those joining listed businesses are likely to have more limited room to negotiate, as notice periods will typically be set out in a shareholder-approved remuneration policy and, in any event, are likely to be 12 months or less.
However, in circumstances where an incentive to entice a senior executive to join the business is more likely to be justified, it may be possible to negotiate a notice period in excess of 12 months provided the period is then reduced to 12 months or less following the expiry of an initial period.
The new world of work may see a move towards longer notice periods as senior executives insist on greater contractual comfort in the event of dismissal, particularly in the early years of starting a new role and before they see the financial benefits of their variable compensation arrangements.
But for those who negotiate lengthy notice periods, the employer is likely to reduce the economic impact of paying in lieu of notice by paying in instalments (as opposed to paying a lump sum).
Additionally, employers are likely to continue the trend of imposing an obligation on senior executives to take reasonable steps to seek new employment, notify the employer of any alternative income received and reduce the amount of further instalments by the amount of such alternative income.
Business protection
When key executives depart, businesses are frequently (and, in some cases, aggressively) looking to enforce post-termination restrictions, including those restrictions which prevent the departing executive from joining a competitor.
Business protection has become a significant concern in the new world of work (particularly in sectors where recruitment is competitive) and there appears to be an increasing appetite to enforce post-termination obligations in the Courts. Senior executives who are looking to join competitors are increasingly looking to find ways to circumvent provisions that restrict their activities by, for example, relying on deficient drafting of such restrictions.
While the so-called Great Resignation may currently be a trend more commonplace in the US, executives in the new world of work are more likely to assess whether or not they have valid grounds for constructive dismissal, as a breach of contract by the employer would render an executive’s post-termination obligations unenforceable.
The new world of work may see a move towards longer notice periods as senior executives insist on greater contractual comfort in the event of dismissal.
Therefore, senior executives who are looking to leave their existing roles would be well advised to fully understand the extent of their post-termination obligations and their express and implied duties and devise their exit strategy thoroughly.
Earlier in the Covid-19 pandemic, senior executives were deploying credible and persuasive arguments that they should be released from post-termination restrictions in certain situations.
This trend is likely to continue in the new world of work with well advised senior executives wanting contractual certainty that they will be released automatically from non-competes if they are dismissed within the first year of employment, are made redundant, or resign in circumstances that constitute “good reason”.
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They are also more likely to resist blanket non-compete clauses and insist on limiting their scope to a list of expressly identified competitors.
