Home' Executive Employment Contracts : Issue 1 Contents 23
Part 4: termInatIon Issues
Managing the termination of employment of executives is a difficult task
which often gives rise to a number of complex issues for employers to
consider. In this part we’ll provide general guidance on the following issues
which commonly complicate the process of terminating an executive’s
► termination with notice;
► restraint of trade clauses;
► protection of confidential information;
► resignation, retirement, removal of directors and the Corporations Act; and
► public statements.
As will become obvious, however, the termination of an executive’s
employment can be a complex task, involving navigating a myriad of legal
and procedural issues. Legal advice before and during this process is
From the outset, there are a number of general tips that employers should
take into account when terminating the employment of an executive.
Employer to ensure contractual obligations are met
Former employees can lodge a common law claim against their employer on
the basis that the employer has breached a term of the employee’s contract.
Although a common law claim is generally rare, because of its high cost to
the employee, it is more often commenced by highly paid employees such
as executives. Employers should, when dismissing an executive, minimise
the risk of an executive making such a claim, by ensuring compliance with all
express and implied terms of the contract.
Ensure the Fair Work Act has been complied with
Employers should not assume that the Fair Work Act unfair dismissal laws
do not apply to executives. Employees who earn more than $133,0002 per
year (exclusive of mandatory superannuation) and who are not covered by
an award or enterprise agreement are excluded from bringing a claim for
unfair dismissal under the Fair Work Act.
2 As at FY 14/15. This amount is indexed and increases on 1 July each year.
While these exclusions will generally capture most executives, if an
executive either earns below the threshold amount or is covered by an
award or enterprise agreement, they will in fact have access to unfair
dismissal remedies under the Fair Work Act.
Has a fair process been followed?
It will be important to ensure that executives are afforded procedural
fairness throughout the process of, and leading up to, the termination of their
employment. It is critical that the employer has processes and procedures
in place to ensure that the dismissal process is properly and fairly managed.
This is important because:
► where an executive is not excluded from bringing a claim for unfair
dismissal under the Fair Work Act, failure to provide procedural fairness
during the termination of employment process may result in a finding that
the dismissal was harsh, unjust or unreasonable; and
► failure to provide procedural fairness may have an adverse impact on the
morale of other staff and, if made public, may reflect poorly on the
Have all Corporations Act provisions been complied with?
Employers should be aware of the Corporations Act provisions that restrict
the giving of benefits in connection with an employee’s retirement from a
board or managerial office without shareholder approval. An employer who
provides a termination benefit to an executive that exceeds the legislative
limit, without shareholder approval, is at risk of contravening these provisions
of the Corporations Act.
As noted in Part 3, careful drafting of the executive employment contract
from the outset can significantly minimise the likelihood of contravening
Make sure public relations implications are covered including
Corporations Act requirements
It is important that you obtain advice on the public relations implications and
any public statements that must be made as a consequence of terminating
the employment of an executive. The Corporations Act requires public
disclosure of information that company members would reasonably require
in order to make an informed assessment of the operations, financial
position and business strategies of the company. This includes, for example,
information about remuneration and termination payments for directors and
certain senior executives.
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