One of the most difficult areas to deal with in commercial life is dismissing an employee. This can be an emotionally and legally difficult process to undertake both for the employer and naturally, the employee.
The legal minefield we are familiar with when considering dismissing employees becomes that more treacherous when the employee in question is also a director or office holder under the Companies Act Ideally, when dismissing an employee who is also a director, obtaining their agreement to resign as a director is the simplest way of achieving your aim. However, when agreement cannot be reached, you will have to look at more formal ways of dealing with the removal of a director.
We list below some corporate issues that employers ought to bear in mind when considering the departure of a director whether by agreement or dismissal. You can register online or follow us on Twitter or LinkedIn to receive our latest news, events and publications.
Following the end of the Brexit transition period and the introduction of new immigration rules, here are the questions This is a question which has been hotly debated in the media and, so far, everyone has struggled to give a clear answer!
Witness statements are a crucial part of any case. Their purpose is to show the case in its strongest light. Indeed, a c Need more information about the above people and legal expertise? Follow us online. Register for updates You can register online or follow us on Twitter or LinkedIn to receive our latest news, events and publications. Popular insights February Ten frequently asked questions about immigration and work in the UK Articles.
Can employers compel staff to be vaccinated at work? Your questions answered Articles. How to successfully challenge witness statements Articles. Title CV Email. This indicates that the dismissal of a director and shareholder falls outside day-to-day commercial decision-making.
You require a board resolution. You risk High Court proceedings, if the company steams ahead and dismisses the director without a board resolution. High Court proceedings are expensive. Even worse, the company may face a security of costs demand from the defending director.
High Court might decide the matter constitutes a shareholder rather than an employment dispute. Then other shareholders, not the company, could be personally liable for the cost of the proceedings, or defending the action. The directors dispute might be about performance issues, e. However, if there is no prior warning, or given instance of gross misconduct, then the company lacks sufficient grounds to dismiss the director.
The company will incur liability for unfair dismissal. The company must first take steps to manage performance. This involves management time and usually stress. However, the problems explained above still remain. The person might be dismissed as an employee, but remains a director and possibly a shareholder, unless there is a board resolution.
If a claim were brought in the Employment Tribunal and the director was successful, he would be awarded a sum equivalent to notice entitlement and compensation for loss of salary going forward. Loss of salary in practice varies from six months salary upwards. Note in an employment tribunal, costs are irrecoverable if you win or lose. The director would be responsible for paying his own fees. The position can be different is there is some element of fraud, e.
The steps would be:. Unfortunately, the dishonest director may argue that suspension requires a board resolution. Note, if another director voted against the honest director, given strong prima facie evidence of serious misconduct, then this could constitute a breach of fiduciary obligations as a director.
In practice, this might not get you very far. The dishonest director can still commence proceedings in the Employment Tribunal or the High Court if you try to dismiss him.
The company will incur costs defending the claim, if the case against the company is weak. Note under the standard articles of association, you might dismiss and remove a director, but the directors share do not transfer to the remaining shareholders.
Companies with a shareholders agreement often avoid this problem, if the shareholders agreement provides for automatic transfer on ceasing to be an employee or a director. If no action is taken by the company, there may be redress from the shareholders and the company carries liability.
The road map for shareholders throws up different issues. Business Law Update Newsletter archive Subscribe. Advanced Search. Speak to a lawyer Contact Us. More posts on this theme Excessive written demands under a personal guarantee Jan 9, No compulsory alternatives to court action Jan 4, Personal Guarantees and Statutory Demands Mar 28, Dispute Resolution Solicitor.
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile. This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation.
We offer a free telephone consultation to discuss your particular circumstances. Comments Thank you, Mr Cousins, for your enlightening discourse. I do wish you would do the same for private residential companies. In that context, there staggering idiocies. By Sophie Johnson 8 May 19, pm Want to add your thoughts? Click here to comment
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