The Perils of Dismissing a Senior Employee

Terminating the employment of senior personnel can be legally complex and costly and, even when professional advice is taken, things can go wrong. The point was made by a case concerning a consultancy group that dispensed with the services of its CEO in acrimonious circumstances.

Following the termination of his employment, the CEO launched proceedings against the group on the basis that it had not honoured his entitlements under a long-term incentive plan (LTIP). After receiving advice from a law firm, the group agreed to compromise his claim by paying him £1.35 million.

The group later sued the firm on the basis that its advice had in some respects been negligent. A number of those allegations were rejected, but a judge found that the firm had breached the duty of care it owed the group in failing to identify a payment in lieu of notice (PILON) clause in the CEO’s contract.

Had the group been advised about the effect of the PILON clause in respect of the vesting of the LTIP, it would have been in a position to negotiate the settlement of the CEO’s claim for a lesser sum. In those circumstances, the group was awarded £118,125 in damages. The facts of the case emerged as both the group and the firm were refused permission to appeal against those parts of the judge’s ruling that were adverse to them.

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