Protecting key executives

July 28, 2014

Each week the fashion industry sees the departure of key individuals from brands or retailers in different parts of the spectrum, buying, designing, and managing.  The past few weeks have seen the Brand Director of USC leave with immediate effect, the creative director of Nicole Farhi depart and the further directors exit New Look.

Departures can be seen as inevitable but for any business it will be the management of these departures and the protections in place to minimise their impact that counts.

Dipping your toes into the shark-infested waters of external investment, can be stressful, not least when you consider your own employment position or that of your senior management team. What should they expect? Keeping senior executives on board, with relevant connection secured against competition, will be key issues for an incoming investor. If you do not already have a well-drafted service contract, you will be presented with one, often at short notice as the deal accelerates towards completion, leaving you, quite deliberately, with little or no time for negotiation.

Key provisions revolve around termination and your post-employment activities.

Expect a garden leave clause (allowing the company to require you to stay at home during your notice period, out of the business and the market and unable to work anywhere else or contact staff or customers), a payment in lieu of notice clause (allowing immediate termination on payment of the specified amount, usually in instalments less mitigation), and restrictive covenants affecting your activities after your employment has ended. Typically these will prevent you soliciting business from or dealing with customers, or soliciting key employees, usually for a period of 12 months post-employment (perhaps reduced by any garden leave period). A non-compete covenant may also be included, perhaps of 6 months’ duration but sometimes 12 months in the case of senior executives. The courts have recently adopted a more employer-friendly approach to the enforcement of longer covenants.

You can also expect to see a long list of grounds on which your employment can be terminated summarily without compensation. Careful attention should be paid to these, to exclude those that are too subjective or discretionary, and to raise the threshold by adding a liberal sprinkling of “serious”, “material” and “reasonable”. Also be aware of how this clause will affect any bonuses or share options you may be expecting to receive.

Key issues for you and your team might include whether bonuses accrue during garden leave (they should, but many employers won’t allow that), the length of your notice period (long is not always best), the existence of directors’ and officers’ insurance (essential), whether any payment in lieu of notice includes benefits (it should, especially if you have valuable pension benefits) or just salary, and whether your role can be changed without your agreement (this should be resisted).

You will be subjected to pressure. The deal is about to close. The corporate lawyers are pressing. But take your time and negotiate the best deal you can – act in haste, repent at leisure!


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