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I was asked this question recently. Amongst other things the client was worried that if dismissed immediately the senior director would be free to go straight to work for a competitor and to try to take valuable customers along with her.
If the contract contains a ‘payment in lieu of notice’ clause (PILON) the company can dismiss lawfully by making a payment and referring to it as such. This means that there is no wrongful dismissal and any valid restrictive covenants remain effective. The company can then sue the ex director for damages or obtain an injunction if she breaches them. If there is no PILON clause and they make the payment anyway then the dismissal could be held to be wrongful. The ex director can go on to argue that the company effectively destroyed the contract and she is free to do whatever she likes, including poaching clients and working in competition.
There was no PILON clause in this case. So to avoid problems the company had to make sure the director was dismissed on notice while placing her on garden leave for the 6 month period.
This wasn’t desirable because the company needed a quick clean break.
To overcome this difficulty I advised it to enter into a settlement agreement containing fresh covenants that provided the right protection. This cost the company extra money on termination. My client felt it was worth paying extra for the security of knowing that for 12 months the customer relationships were safe and the ex director was not going to work in direct competition.