The Multi-Million Pound Exit: What Really Happens When Managers Get Sacked?

🔒 Why have such a clause and is it enforceable?

The key advantage of liquidated damages clauses, if drafted carefully, is that they’re legally enforceable. Both parties are bound by what they agreed. For managers, these clauses should link directly to the notice period. Where there’s no notice provision, the justification is based on a genuine pre-estimate of loss.

📉Does Performance affect your payout?

For a manager or head coach their loss is essentially the same whether the team finishes first or last. They’ve lost their job and income either way. This is why compensation generally shouldn’t vary based on league position or performance. That would be difficult to justify as a pre-estimate of loss and could be challenged as unenforceable.

There are exceptions where poor performance might warrant a compensation drop. However, this is normally coupled with an event that could have a negative effect on a club’s financial or business position. For example, a club might negotiate that if the team loses Premier League status, compensation drops to 45% of remaining salary.

Such clauses need to be considered and drafted very carefully otherwise they could become vulnerable to challenge as mentioned above.

🧩How clubs structure the contracts

These contracts vary in length and structure, but most include a protection period in the first 6 to 12 months. If the manager or head coach is dismissed during this period, their compensation is higher, sometimes up to 18 months’ salary.

In recent years, 12-month rolling contracts have become common. They are simpler from a compensation point of view. No matter when termination occurs, the payout is capped at 12 months. Clubs often use this structure to review performance on a yearly basis and retain flexibility.

💰 How you actually get paid

Despite the headlines about multi-million pound payoffs, managers and head coaches rarely get a cheque for the full amount.

Common structures include:

– 25% paid within 30 days

– The rest spread over monthly instalments (often over half the remaining contract period)

– Some clubs push for even longer payment schedules to ease cash flow

⛔ The mitigation clause

This is where contracts differ most dramatically with huge financial implications for the club and manager or head coach.

Put simply, mitigation means you have a duty to look for another job and reduce your losses. If you find work, your old club’s compensation gets reduced by whatever you earn in your new role. Here’s how it works:

WITH mitigation: Let’s say you’re owed £3M over the remaining contract period. You get sacked in October and land a new £2.5M job in November.

Your old club only pays £500K. The £2.5M from your new employer offsets the rest pound-for-pound. You’re being compensated for your actual loss, not getting paid twice.

WITHOUT mitigation: Same scenario. You still get the full £3M from your old club, plus the £2.5M from your new employer.

That’s a £2.5M difference to the club. This is exactly why more clubs are insisting on these types of clauses as standard.

💭 What you need to remember!

When you see next see headlines about massive compensation packages, remember:

🔍Liquidated damages must be a genuine pre-estimate of loss to be enforceable.

📊 Compensation generally shouldn’t vary based on performance.

💰Payments are rarely made in one go. They are usually spread out over months or even years.

⚠️Clauses linked to major events, like Premier League relegation, do exist. They are uncommon and legally risky.

🔄Mitigation clauses can significantly reduce actual costs for a club if the manager finds work quickly

 

If you want to talk this through or sense-check a contract, drop Nathan Chambers (nathan.chambers@onsidelaw.co.uk) and Oliver Hunt (oliver.hunt@onsidelaw.co.uk) a line.