Managing departures to minimise financial and reputational damage

Will Kernan jumping ship from New Look to join White Company. Raf Simons joining YSL.  Marc Jacobs jumping ship to Dior. Founder Tamara Mellon leaving Jimmy Choo with immediate effect. Sim Scavazza leaving as M&Co's buying director after being in post for just one year. The fashion world is abuzz with rumours.

Whatever the case, recent speculation and high profile departures from top end fashion companies have, and should, make employers nervous.  Failure to properly manage departures to minimise financial and reputational damage can have a real impact on the business: just ask Dior and Galiano!

Tactics

The first issue to consider is likely to be tactical. If the departure or dismissal of a senior employee is probable, you will need to consider how to minimise any disruption to the business, how to manage a swift exit, and what message should be communicated both internally and to the outside world about the reason for the departure.

An agreed or ‘forced’ exit?

Whilst some senior departures are amicable and dignified, others will leave against their will and you may need to consider a financial settlement in order to effect an exit in line with your commercial objectives. Having a grown-up conversation with the employee can often bear fruit, but that does lay you open to an unfair dismissal claim, and possibly worse if discrimination is alleged. That plays into the amount of compensation that might be offered.

If the exit is involuntary, the reason should be identified early on because this will determine the potential claims that the employee may be able to bring (which will in turn impact upon any settlement you might offer) and what process, if any, should be followed. Possible reasons for the dismissal may be:

  • Gross misconduct - this will only apply to serious wrongdoing on the part of the employee and allows you to dismiss immediately without notice and without compensation.
  • Poor performance - this will often be heavily disputed by the employee. Unless the poor performance amounts to gross negligence, the employee should be given an opportunity to improve (which can take several months and is usually unacceptable at a senior level).
  • Redundancy.

How should the exit be handled if none of the above apply and you simply want to ‘shake things up’ and get fresh blood into the business? With difficulty, is the answer if at the same time you want to minimise his exposure to claims. The Government’s consultation on “protected conversations” may result in some helpful latitude for employers in this area. But it will not be for some time.

Great care needs to be taken when dealing with older employees. The fashion industry can be seen as a young person’s province, but not exclusively, which creates something of a problem, of perception if nothing else. If removal amounts to age discrimination, it could land you with a potentially expensive employment tribunal claim. Retirement is no longer a fair reason for dismissal and employers cannot require employees to leave once they hit 65. If a suitable time for retirement cannot be agreed, you will need to consider whether any other fair reason to dismiss applies. Performance managing an older senior employee can be difficult, stressful for all and time-consuming, but that is the route that may have to be followed. 

Termination with or without notice?

How a senior employee’s exit is managed will be influenced by whether or not that employee is required to work out his or her notice period.  Well-drafted contracts will allow you to put an employee on garden leave once notice has been served, or to make a payment in lieu of notice.

 

Garden leave entails the employee remaining in employment but being required not to attend the workplace or to have contact with clients, customers or other staff. The advantage is that since employment is continuing, the employee is still bound by all the terms of the contract, including those relating to loyalty and confidentiality, and may not obtain employment elsewhere - this may be crucial if you wish to protect your business interests. Ensuring that a former employee does not reveal trade secrets to competitors and keeping them away from next season’s designs can be critical, and a garden leave provision is an absolutely essential weapon in your armoury.

 

Again, a well-drafted contract will contain covenants that restrict the employee’s activities for a period of time after termination. These often restrict the extent to which the employee can work in competition, deal with your clients or customers, or poach your staff.  Sometimes difficult to enforce admittedly. But if you don’t have the tool, you won’t have the luxury of choosing whether or not to use them!

However, be warned! If you commit a  fundamental breach of contract you will release the employee from any obligations under the contract.  No matter how well drafted, they might as well not exist (although if this happens, insisting that they be reinstated as part of the commercial deal on settlement is probably the solution). 

Compromising claims

Many employers want the certainty of knowing that all claims have been waived and that the former employee is unable to sue at a later date.  However, there is usually a financial price to pay for this.  A compromise agreement is a binding legal document under which the employee waives claims against its former employer, usually in exchange for a compensation payment. Some key issues that would need to be addressed include confidentiality, restrictive covenants, an agreed announcement, a reference and a no bad mouthing provision.    

Overall managing-out senior executives requires tact and extensive management skills. If you  want to avoid following, often lengthy, legal processes, you should be prepared to get the cheque book out! But whatever situation you are dealing with - plan ahead!

 

 

Mark Watson is a partner and Laura Evans is an associate in the Fashion Law Group at Fox Williams LLP. Both specialise in employment law. They can be contacted at mawatson@foxwilliams.com and levans@foxwilliams.com.

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Mark Watson

Mark Watson

Partner
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