This article was originally written for and featured in HR Magazine.
On 19 December 2012 the Supreme Court delivered its Judgment in the case of Raphael Geys against Société Générale (London Branch). The Judgment establishes important issues relating to the termination of employment contracts.
The relevant facts are as follows. Mr Geys was employed by Soc Gen as the Managing Director of its European Fixed Income Sales, Financial Institutions division. Soc Gen purported to dismiss Mr Geys without cause but with immediate effect on 29 November 2007. They were not entitled to do this as Mr Geys’ contract contained a three month notice provision. Accordingly, the purported termination was a repudiatory breach of contract. On 18 December 2007, Soc Gen sought to exercise a PILON (payment in lieu of notice) clause in its Staff Handbook by paying Mr Geys’ notice pay into his bank account. However they did not notify Mr Geys that they had done this until they wrote to him on 4 January 2008. The key issue before the Court was when Mr Geys’ contract terminated: 29 November 2007, 18 December 2007 or 6 January 2008 (the deemed date of receipt of Soc Gen’s letter of 4 January).
Soc Gen’s argument in favour of 29 November 2007 was that in the case of a wrongful summary termination of an employment contract, it is not open to the employee to elect whether to accept the employer’s breach (and bring the contract to an end) or to affirm the contract and keep it in existence: the contract comes to an end at the date of the wrongful termination. Their alternative argument, in favour of 18 December 2007, was that the payment of the notice pay into the employee’s bank account is sufficient to exercise the PILON clause: there is no need to also notify the employee that the clause has been exercised. The significance for Soc Gen of establishing a 2007 termination date, rather than 2008, was that it would save them almost €2 million because of the way in which the termination payment due to Mr Geys under his contract was calculated.
The Court rejected both of Soc Gen’s arguments and found that Mr Geys’ contract terminated on 6 January 2008. They clarified and reaffirmed the existing law that in the case of a repudiatory breach of an employment contract, the contract continues in existence unless and until the innocent party elects to accept the breach. The Court pointed out that if an employer’s repudiatory breach were to terminate the contract, it would make it much easier for the employer to orchestrate the termination of the employment for a time beneficial to it, for example shortly before the employee was due to receive a bonus or salary rise.
In relation to the exercise of the PILON clause, the Court held that for this to be effective the employee must be given clear and unambiguous notice that the clause has been exercised and informed of the date when the payment has been or is to be made. If the notice is given before the payment is made, the contract will terminate on the date of the payment. If it is given after the payment (as in Mr Geys’ case), the contract terminates on the date of the notice. The notice need not be in writing (subject to any contrary provision in the contract) but it is clearly advisable that it should be. In reaching its conclusion on this issue, the Court highlighted the unfairness of a situation where employees would have to regularly check their bank accounts to see if they had been dismissed. The Court also drew attention to the potentially serious consequences of an employee’s life and health insurance coming to an end on termination of his contract but without his being aware of this because he had not been notified that a PILON payment had been made.
The main lesson from this case for employers is to ensure that contractual termination provisions are properly exercised and that employees are left in no doubt as to why, how and when their employment is being terminated. As the Court pointed out, Soc Gen could easily have avoided the problems they got themselves into and saved themselves a lot of money.
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