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Director Termination and Severance

There are two types of directors; executive and non-executive. There is no legal distinction between the two, however, executive directors are usually involved in the day-to-day operations of the business whilst non-executive directors use their experience to provide independent advice and usually have a role in managing executive directors.

A director is an officer of the company and many are as self-employed as they have a contract for service. They are therefore paid a fee instead of a salary. It is possible for a director to be an employee and, if so, they will benefit from employment protection rights not available to non-employees, such as unfair dismissal.

There are various methods to removing a director from office: 

  • By ordinary resolution of the company, notwithstanding any provision to the contrary in the Articles of the company and notwithstanding any term of the director’s contract under provisions in the companies articles of association if disqualified from acting.
  • An important consideration on termination of a director’s service contract is financial implications. The employer will therefore have to carry out an analysis of the director’s service contract and benefits.
  • There are also contractual implications on termination as an employer will also have to ensure that, if they want restrictive covenants to remain enforceable, that they do not breach the contract by wrongfully terminating it.
  • In terms of severance payments, it is unlawful for a company to make “a payment for loss of office to a director of the company unless the payment has been approved by a resolution of the members of the company” (section 217 Companies Act 2006).
  • If approval is not obtained, the director will hold the payment on trust and the directors making the payment will be liable for the payment amount.
  • The requirement for shareholder approval does not cover payments made in good faith in discharge of an existing legal obligation or for damages for breach of contract.

Our employment department, comprised of experienced employment law solicitors and dedicated support staff, can provide you with practical advice and guidance as well as represent you in an employment tribunal claim. To speak to one of our expert Liverpool employment law solicitors call 0151 735 1000.

 

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