The family firm also revealed the extent of the financial problems that led to the group making a £1.9m pre-tax loss for the year to 30 June. These centred on losses made on one major contract and other under-performing operations.
Alan Fletcher, group chairman, said the company had decided to write to staff after the dispute was reported in the press last weekend. Shepherd has issued a High Court writ and begun an employment tribunal claim against the group, alleging wrongful and unfair dismissal from his job in April and seeking "substantial damages".
Shepherd's lawyer, Julian Roskill of London firm Mayer Brown Rowe & Maw, said the writ centred on Shepherd's contention that he had an 18-month notice period in his contract. The group has refuted this.
Roskill said: "We have issued proceedings to recover what is due to him, no more than that."
In the letter to Shepherd staff, Fletcher said the company would "be contesting his claim most vigorously" and that the board of directors believed there was "strong merit" in doing so.
Fletcher, who replaced Shepherd as group chairman last year, also outlined the circumstances behind Shepherd's sacking.
The letter states: "By March 2002, there was an irretrievable breakdown in working relations between Paul Shepherd and all other members of group board, and it was decided that the only solution was for him to leave the company. At a meeting on 8 April 2002 he was told in detail why the group board had reached a decision to terminate his employment." Fletcher says Shepherd was placed on "gardening leave" until 30 June, when he resigned as a main board director and his employment ended.
Fletcher added: "Although we would have preferred to keep communications between Paul Shepherd and the company on his departure on a strictly private basis, his action has placed the issues in the public domain."
Fletcher also released details of the group's performance for the year to 30 June earlier than usual. Operating profit rose 21% from £14.2m to £17.2m and turnover increased £18m to £557m.
But Fletcher said the group had been hit by losses of £10.8m on a design-and-build contract. He would not identify the project, but the group is understood to be having difficulties with a number of schemes, including a £45m processing plant for United Milk in Bristol. The group's three poorly performing US businesses have also been sold at a loss of £8m, leading to the group's £1.9m pre-tax loss.