Severance and notice pay: an employers’ guide

How should HR handle termination payments when an employee is under investigation for misconduct? Hina Belitz reports

Caption: Getty Images

In the wake of Dame Alison Rose stepping down as CEO of NatWest, BBC News has reported that she is due to be paid £2.4m while she works out her 12-month notice period at the bank.

Senior Conservative MPs have called for her severance pay to be axed after Rose admitted making a “serious error of judgement” in being the source of a BBC story alleging that the closure of Nigel Farage’s account at Coutts was because he fell below the bank’s wealth threshold.

Her situation raises key employment law questions – particularly about how to terminate an employee for misconduct and what entitlements employees have in such circumstances. 

Notice pay 

Notice pay is a contractual right, but employers are entitled to terminate an employment contract without notice or payment in lieu if an employee commits gross misconduct. Even where an employee’s conduct may justify dismissal, however, they may have an unfair dismissal claim if they have two years’ service and the company does not follow a fair procedure in implementing the dismissal.

Most businesses will be aware of the law and their obligation to conduct thorough proceedings before drawing conclusions as to a worker’s conduct. While an organisation may seek to expedite an investigation into the employee’s actions – perhaps to limit public outrage – it cannot act in an unfair or unreasonable way in doing so.

Employers, especially higher-profile employers dealing with senior executives, should take note: there is an important balancing act between securing the commercial advantages of a swift departure and preventing procedural unfairness.

Severance pay

If a worker enters into a settlement agreement with their employer, they may receive a severance payment in addition to their notice pay, intended to compensate the individual for loss of office. The amount would be a matter for negotiation by the parties and would depend on many factors. If the employee does receive a termination payment, the details of this are almost always confidential.

Where businesses are looking to enter into a settlement agreement with senior employees, any offer should reflect the value of any claims the employee may have, as well as other concerns such as how long the employee may take to find alternative employment.

On the other hand, employers should take care not to appear to be rewarding failure in cases of misconduct, as cases of poor performance are the most likely to attract attention when it comes to severance packages.

Investigation outcome

The sum the departing employee ultimately receives will depend largely on the outcome of the firm’s investigations. If they are found to have committed gross misconduct, it is possible that they will receive no notice or severance payment. If gross misconduct is not made out, while they will be entitled to notice money, the worker may be required to sacrifice certain other benefits, such as shares, on exit.

In cases where poor performance has fallen short of gross misconduct, discretionary benefits will be the most vulnerable to being cut in settlements. Regardless, many senior executives also have other sources of income, including pension pots. These will supplement notice and termination payments and can remain unaffected by negotiations or disciplinary investigations.

Hina Belitz is a partner and specialist employment lawyer at Excello Law