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The sacking of Steve McClaren as England manager serves as a stark reminder to organisations appointing key personnel to consider what would happen if the relationship goes sour, says law firm DWF.
The firm says that when negotiating the terms of the contract, companies should consider the implications if the individual underperformed and had to be removed from the post.
McClaren signed a four-year deal with the FA, starting on 1 August 2006. The FA board voted unanimously to terminate his contract early following England's defeat last week. He will reportedly receive a ‘golden goodbye’ pay out of £2.5 million.
Clare Young, a solicitor with DWF says: “His pay-out is likely to include a payment in lieu of notice and to compensate him financially in respect of any other breaches of contract caused by the FA's early termination. Following his sacking, the FA will be looking to appoint a permanent successor and may have to appoint a caretaker manager in the meantime – potentially another added expense.
“McClaren's case reminds everyone how costly it can be if things don't work out. Any companies appointing senior executives would be well advised to consider the possibility of things going sour at the outset.
“When negotiating appointments with any key individual, companies should bear in mind what the implications would be if they decided to terminate the individual's contract early. Amongst other things they should calculate how much they would have to pay the executive on termination, assess his or her pension rights and the position in respect of share options.
“The contract should contain carefully drafted confidentiality clauses and other restrictions that would apply to the executive after termination. The company should consider whether garden leave clauses are appropriate.
“Any company considering sacking a senior executive should bear in mind that, if this breaches the contract of employment in place, any restrictions would be void and new ones would need to be agreed to protect the company's business, which can prove costly.
“Where the employee is also a director, he or she will have to resign or be removed from office and it may be necessary to obtain shareholder approval for any compensation payments. Any termination package should be wrapped up in an appropriate compromise agreement.
“Everyone likes to start out on a positive note, however if things do go wrong, having a carefully worded contract in place will minimise the cost and the longer-term damage for the company.”
Notes to editors:
DWF LLP is one of the fastest growing regional law firms in the UK and has recently merged with Ricksons. With over 850 people based in Manchester, Leeds, Liverpool and Preston, DWF provides a range of services grouped under the following practice areas:
Banking & Finance
DWF has developed extensive sector-specific expertise in a number of areas including: automotive, education, retail & leisure, legal expenses and food and resourcing. Further information on DWF is available via www.dwf.co.uk
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