UK: One-Minute Briefs - Dismissal claims set to soar under new proposals.

UK: One-Minute Briefs - Dismissal claims set to soar under new proposals. - The acrimonious departure of a senior executive is rarely couched in terms of dismissal. A quick pay-off usually ensures that the executive keeps mum and the matter is swept unde

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Last Updated: 31 Aug 2010

The acrimonious departure of a senior executive is rarely couched in terms of dismissal. A quick pay-off usually ensures that the executive keeps mum and the matter is swept under the carpet - or at least that's what companies have relied upon in the past.

All this could change if the Government's proposals to remove the £12,000 ceiling on compensation for unfair dismissal, as set out in its Fairness at Work white paper, go ahead. 'It's going to make the whole environment more contentious,' warns Paul Nicholls, employment law partner at Dibb Lupton Alsop. Taking an employer to court was always an option for aggrieved directors, but the prospect of limitless compensation will open the floodgates to opportunists seeking a higher pay-off.

Representative bodies are getting worried. They are concerned, particularly in this era of no-win, no-legal-fee action, that a sort of unscrupulous lottery might take place, with people at all levels tempted to pursue claims. This is why the Confederation of British Industry (CBI) and the Industrial Society have recommended that the Government cap compensation for unfair dismissal at £40,000.

Whatever a director's motive, and whatever the Government decides, the lesson is clear: employers must be more careful when removing a director, or it may cost them dear. For now, firms can still opt to 'part company' with directors without incurring a hefty penalty, and some employers are taking advantage of that, according to Michael Burd, head of employment law at solicitors Lewis Silkin.

In the longer term, companies will need to obtain good legal advice before taking any action. Normal procedures such as verbal and written warnings are an option, but Burd recognises that, in the rarefied atmosphere of the boardroom, they may be unrealistic.

Dibb Lupton Alsop 'gently' advises its clients to send unsatisfactory directors a letter as the 'first step' of the legal process which gives them the option of taking a voluntary severance. The letter should be carefully worded, making it clear that no final decision has been taken about their future and it all depends on their performance.

Burd, meanwhile, recommends avoiding the situation from the outset. He suggests that employers and executives could pre-agree the level of compensation to be paid should the director's contract be brought to an end prematurely.

At least that would guard against damaging and bruising public rows as senior executives depart.

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