DLF attorneys-at-law | View firm profile
Top managers belong to the category of employees on whom the company efficiency depends, as top managers implement business and corporate policies – strategies, business plans, and projects – and make decisions that will determine the future of company business. Although it is indisputable that business is based on complete trust, effective control mechanisms could hardly be dispensed with. These truisms are well known to everyone. However, as practice shows, sometimes business owners overlook important issues that later lead to financial and reputational risks.
It would be advisable to consider the main issues regarding
top managers dismissal.
Planning everything in advance
"One should not underestimate the contract importance"
is the most common statement of a lawyer. The labor contract is one of the key
elements in avoiding labor disputes. The following are the main key points to
be defined in detail in every labor contract with top managers:
• hazards of intellectual property issues in
employment contracts;
• confidentiality;
• restrictions on signing or approving certain
transactions in a certain value;
• the golden parachute;
• procedures for documents and assets transfer;
• additional reasons for the labor contract termination;
and
• top manager’s liability.
The above detailed benchmarks of the labor contract
could play a crucial role in minimizing the risks that can arise when
dismissing top managers.
Required steps to terminate top managers
Every
company owner must have and follow a clear plan when dismissing top managers.
Otherwise, the consequences of overlooking a small matter can be unpredictable and
lead to the dismissed top manager reinstatement.
Under
Article 99 (3) of the Civil Code of Ukraine, the top manager may be revoked or
suspended at any time on the employer's will.
In the case of a suspension, the top manager will continue to receive the
salary until termination.
Procedure for top
manager’s change:
1) resolution on
dismissal by the responsible corporate body
It is important to ensure
that the resolution on the current top manager dismissal and the new top
manager appointment is made by the corporate body empowered to make such
resolutions in accordance with the Articles of Association.
Resolutions on the
management change may be passed by the shareholders’ general meeting or by the supervisory
board. Therefore, such a resolution should strictly adhere to the Articles of
Association provisions. Otherwise, such a resolution may be challenged in court
and the managing director may be reinstated.
The resolution must
include: the reason and date of the current manager termination, information
about the person authorized to sign a contract to terminate the employment
relationship with the current top manager, the date of the new manager appointment,
information on the person authorized to conclude a labor contract with the new
manager, information on the person authorized to register the new manager in
the Unified State Register of Legal Entities, Individual Entrepreneurs and NGOs
(hereinafter "the Unified State Register").
2) Order on dismissal,
employment contract
Once
the shareholders' meeting has decided to dismiss the managing director,
irrespective of the reasons for such a dismissal, the managing director has to
issue a notice of dismissal. It is essential to state the reason for dismissal
in the order – the minutes of the shareholders' meeting, the top manager's notice
of dismissal or, if applicable, the contract clause or a reference to the
relevant article of the Labor Code. These documents must be signed by the
manager or a person authorized by the company owner. It should not be forgotten
that the manager is an employee like everyone else. Therefore, on the termination
day he must be provided with the duly completed workbook indicating the reason
for his termination and the salary paid in full. Otherwise, if the workbook handover
is delayed or the employer fails to pay the outstanding amounts in due time,
the employer must pay the average salary for the entire duration of the forced
redundancy.
Agreement
on employment relationship termination may be used if the employer and the
employee have jointly decided to terminate the employment relationship by
mutual agreement between the parties.
Following
provisions should be outlined in the agreement: all compensation payments, provision
with respect to the employer’s confidential information, non-compete clause (taking
into account peculiarities of the issue regulation in Ukraine), the procedure
for transfer of the tasks, assets and customer base (e.g. keys, passports, fuel
cards, supermarket cards, flash drives, passwords, official documents (both
copies and originals)), penalties for non- or poor performance of the agreement
and other essential conditions.
3) Block
bank accounts (if required)
If
the company assets are exposed to a risk, it is recommended to inform the bank
immediately after the resolution on dismissal was issued and block the accounts
until the management change would be registered in the Unified State Register.
In practice, it is one of the most important measures, as it saves the company assets.
4) Transfer of documents
and assets to the newly appointed top manager
The
procedure of the documents and assets transfer in case of the management change
could be defined in the founding documents and in the company internal
regulations and/or in the labor contract, as well as in the agreement on employment
relationship termination.
The
actual handover of documents and assets must be documented in a handover and
acceptance act, in which the former and newly appointed top managers indicate
the list of documents and assets to be transferred and the handover date. This
document may be used as evidence if some documents or assets have not been
transferred to the newly appointed top manager.
It
is necessary to request from the former top manager all information on the
pending court disputes and on any complaints from business partners. It would
also be advisable, after the management change to check the main state
registers such as the register of judicial decisions, enforcement proceedings,
etc., since litigation may affect the company business.
5)The
management change registration in the Unified State Register and the bank notification
Thus, a management change
requires not only the the shareholders’ decision but also the obligatory state
registration of changes made in the Unified State Register.
The
following documents must be submitted to the Unified State Register: a completed
application form for the registration of changes, shareholders’ resolution or
minutes of the shareholders' meeting, a bank receipt and a power of attorney
(if the change of the top manager is carried out by an authorized person).
The
next important step is to submit documents to the banks where the company has
accounts. It is recommended that the list of documents to be submitted should be
clarified in advance. As a rule, the following documents must be submitted to
the bank: confirmation of the newly appointed top manager registration, an
order of the top manager appointment, the original and a copy of the passport.
6) Notification of business
partners about the management change
An
important aspect, which is often forgotten in practice, is the notification of
business partners about the management change and blocking the former manager's
access to the customer base and correspondence.
It
is advisable to notify the business partners not only in cases where such an
obligation is contractually agreed, but also in other cases, for the company to
be protected from misuse by the former top manager and for the customer base
not to be lost.
7) Revocation of powers
granted by the former managing director
Each
company has a register of powers of attorney. It is recommended that the newly appointed
director should issue an order to revoke previously issued powers of attorney
(if required). The company employees are to be familiar with such an order
against signature. A copy of the order must be sent to the business partners
and contractors. The newly appointed top manager must also make an appointment
with the notary to check whether the former top manager has a notarized proxy.
8) Recommendations to the
newly appointed top manager
It
is advisable to take the following steps after an appointment:
•
to arrange for an audit;
•
to carry out an inventory. It should be noted that the inventory should also be
carried out by the previous top manager;
•
to check the number of unused vacation days for each employee;
Not
all issues that may arise in practice have been mentioned above. However,
taking into account the abovementioned issues regarding the top managers’ appointment
and dismissal will help prevent future risks.