Проблемные увольнения руководителей высшего звена
Lidiya Sangarovskaya, Senior Associate
Kristina Demchenko, Associate
Reasons for Dismissing Senior Managers
For the proper functioning of the legal entity it is very important that it is the top managers who meet the highest standards of corporate responsibility, act in compliance with regulations themselves and actively introduce a culture of compliance in all spheres a legal entity’s activities, and also perform their duties in good faith and completely. However, this does not always happen and sometimes for the benefit of the legal entity, as well as of its employees, such managers are to be dismissed if there are legitimate grounds therefor. In this case it is necessary to apply the provisions of the Labour Code of Ukraine (hereinafter – the Labour Code). In theory, everything looks not so difficult.
As a rule, the grounds for dismissing senior managers are the following:
- The grounds provided for in the employment contract (Article 36 (1)(8) of the Labour Code);
- A single gross violation of labour duties by the head of a legal entity of any form of ownership (a branch, a representative office, a unit and another separate subdivision) (Article 41(1)(1) of the Labour Code) (this ground may be provided in an employment contract and regulatory acts);
- Illegal actions of the head of the legal entity, as a result of which wages were not paid in time or in amounts lower than the minimum wage established by law (Article 41(1)( 11) of the Labour Code);
- Termination of powers of officials (Article 41(1)(5) of the Labour Code).
The draft Labour Code of Ukraine registered under No. 1658 in the Verkhovna Rada of Ukraine on April 27th, 2015 also proposes to introduce new grounds for the dismissal of top managers, namely:
- Disclosure of state secrets, commercial or other information protected by law, which became known to an employee who signed a non-disclosure agreement, or an employment contract with who contained the condition of non-disclosure of protected information in connection with the performance of labour duties;
- Violation of the rights of founders (members) by the head or members of the executive body of the company.
It should be noted that this draft Labour Code of Ukraine has already passed several stages of consideration, namely it was adopted by the Verkhovna Rada of Ukraine in the first reading on November 5th, 2015. The version prepared for the second reading was supported by the Verkhovna Rada’s Committee on Social Policy, and on September 7th, 2017 a table of amendments-2 was provided.
Since senior managers, possessing leadership qualities, usually have quite a strong influence on the team, can enjoy the loyalty of other employees, and, in manifesting their ambitions, wish to remain on their position for the longest time, it is extremely important to understand at least some of the main aspects that can affect the course of dismissal of such managers.
It will be necessary to ascertain whether the employee of the HR department who has been assigned with the role of notifying the manager of dismissal has a conflict of interest, lacks internal loyalty or a sense of subordination to the person being dismissed. Among other things, it is necessary to check in advance whether the HR-employee in question was directly subordinate to the senior manager, followed his instructions, how long and productive the business relationship among these people was, whether the HR-employee supports the company (employer) or such a manager. In other words, we need to make sure that the employee of the HR department will act in the best interests of the company and will be able to prepare quality documents and carry out the dismissal process not being influenced by the dismissed manager.
Given these circumstances, if there is a possible conflict of interest, it is worth thinking about outsourcing consultants/lawyers, so that everything goes in a more acceptable and civilized manner for both sides.
Next, we need to arrange for the clearly formulated action plan, the transfer of cases, the preparation of all the necessary documents in a timely manner, signing them, notification of the dismissal of the most senior manager and employees and contractors of the company. It is recommended to take into account the time (in the morning or better in the evening), the place of this event (an employee of the HR department will call a senior manager to his office or come to his office), presence of other persons (other employees, outsourcing consultants/lawyers).
Employees ordered, for example, by the founders or the headquarters of the company, to notify of the dismissal, also should understand whether there has already been any preliminary conversation with the manager, whether he is aware of something, whether any conditions of his withdrawal/termination of powers have been discussed. That is, before starting this process, one needs to prepare very thoroughly.
What to Be Ready for
Firstly, it is necessary to check whether there are legitimate grounds for dismissing the top manager, whether all the provisions of the employment contract/agreement, job description are clear, whether there are any gaps in the documents or contradictions between the individual paragraphs. Usually, these can be the provisions related to compensation, rewards, obligations. If they contradict each other or can be interpreted differently, this should be considered before talking to the manager and prepare counter arguments for any disputed aspects.
Secondly, it should be remembered that the termination of the employment agreement/contract (depending on the reason) in the last three cases mentioned above, in accordance with Article 40(3) of the Labour Code, cannot be initiated by the owner or the body authorized by him during the temporary incapacity for work of the respective employee, as well as during his/her vacation. This rule does not apply only if the legal entity is dissolved.
This right is often abused by senior managers who can on the day of getting a notice of their dismissal (if there are all legal grounds for that on the part of the employer) may go on holiday or take a sick leave. That is why it will be much more effective to inform such a senior manager about the dismissal in the evening, then it will be more difficult for him to take a sick leave to perform any other actions.
Also, at the time of notification of dismissal, one should have all necessary documents, and all measures should be taken to ensure that the manager cannot illegally take away the seal (if any), the constitutive documents, keys to the safe and the service valuables given to him.
Given the special influence exerted by the senior manager on employees, one should beware of the cases when the manager can collide with key employees to carry some illegal actions. For example, there are cases when a senior manager, having a system administrator on his side, gets access to all correspondence concerning his dismissal even before the notification. It can also happen that a chief accountant, together with the head, predicting the dismissal of the head, go on vacation together, taking away the keys from the safe and blocking the company's activities, all transfers on wages and registration actions. If sufficient caution is not exercised, the company's activities may be blocked even for several weeks.
It happens that the director, knowing about his upcoming dismissal, signs contracts "retroactively", for example, contracts for the provision of one-time services (oral counselling) and acceptance and transfer certificates for them. It is rather difficult to verify the fulfilment of such contracts in the future, and debt obligations under such contracts may arise. Therefore, it is necessary to stop possible outflows of information, at the time of notification of dismissal, have all the necessary documents, including on the return of all items and material assets handed over (such as keys, seals, laptop, machine, phone, corporate SIM card) to the manager being dismissed. Notify all employees of the company and its contractors of termination of this employee's authority. It is also important to have a prepared package of documents for re-registration, legalizing a new head, transferring items to allow fulfilment of its functions.
Conclusions and Recommendations
If the senior manager managed to take a sick leave before being notified of dismissal, to prevent any his negative actions that could damage business reputation or property of the company, we recommend that you notify both the employee himself and the contractors that the respective manager took a sick leave and for this time cannot perform his duties.
At the dismissal of the senior manager it is necessary to change all codes and passwords immediately after the announcement of this process.
However, the best outcome, of course, will be a peaceful settlement of all issues. An example of this can be so-called "golden parachute", a situation in which the employment agreement/contract provides for a compensation previously agreed by the parties, which is paid upon the dismissal of a senior manager. This is not a war. If the manager invested a lot of energy to the company, his dismissal must be carried out purely on legal grounds, respectfully and competently.