Last month, Fox Williams secured a win for Mr Geys in his employment claim against Société Générale (SocGen). The High Court decision addressed a number of issues commonly faced by employers with regards to giving notice to terminate an employee’s employment and shows how easy it is for employers to get it wrong. This case is a reminder that the price of getting it wrong can be very expensive indeed, so its worth making sure you’ve crossed the ‘t’s and dotted the ‘i’s to get it right!
Mr Geys was recruited by SocGen in 2005 to head up its European Fixed Income Sales, Financial Institutions. His basic salary (£150,000 when his employment ended) was a small part of his remuneration. Unlike most bankers whose bonuses are purely discretionary, his contract contained detailed provisions for calculating his bonus each year based on actual results. It also contained detailed provisions dealing with substantial payments which would be made to him if he left in certain circumstances.
Mr Geys was highly successful in his job. To qualify for his bonus he had to be in employment until 31 December 2007. Despite his success, on 29 November 2007 SocGen told him he was being fired with immediate effect. The termination date had a significant impact on what was due to Mr Geys under his contract. SocGen initially claimed it owed him nearly €8 million (in court, it argued it didn’t owe Mr Geys anything), Mr Geys argued the correct figure was €12.5 million. Mr Geys claimed that SocGen had not in fact terminated his employment in November 2007 because it had not properly exercised its right to terminate his employment immediately, by making a payment in lieu of notice. The Court agreed and found that SocGen’s termination of Mr Geys’s employment amounted to a repudiatory breach of his employment contract.
What steps does an employer have to take to ensure that it can terminate employment and make a payment in lieu of notice (PILON)?
The Court held that SocGen failed to use the PILON clause effectively. It found that SocGen had not given Mr Geys ‘clear and unambiguous’ notice of its intention to exercise its right to end his employment with immediate effect by paying him in lieu of carrying out his notice. Its letter said SocGen “has decided to terminate your employment with immediate effect…[SocGen] will arrange for the appropriate termination documentation to be provided to you and your legal adviser”. There was no mention to payment being made to Mr Geys in lieu of him carrying out his notice period and no payment was made at the time the letter was sent.
SocGen argued that a payment it made into Mr Geys’s bank account in December 2007 (of which Mr Geys received no explanation) was intended to be a payment in lieu of notice, so Mr Geys’s employment was deemed terminated then, if not on 29 November 2007. The Court disagreed. Making a payment to the employee intending it to be a payment in lieu of notice, but without actually telling the employee what the payment was for, even if the employee should have known or could have guessed what it was, was not sufficient to terminate the employment with immediate effect.
The Court found that Mr Geys’s employment was only terminated when he received a letter dated 4 January 2008 from SocGen which gave clear notice to him that it had chosen to exercise its right to pay him in lieu of his notice period. The date of termination was therefore deemed to be 6 January 2008 (2 days added to allow for postal delivery of that letter).
SocGen’s failure to exercise the right to payment in lieu effectively meant that the deemed date of termination was after the relevant qualifying dates for Mr Geys’s bonus entitlements, and has therefore potentially cost it around £2.5million.
Staff Handbook vs. Employment Contract
SocGen’s right to pay Mr Geys in lieu of notice was not set out in his employment contract but in the staff handbook. Under his employment contract, Mr Geys was entitled to three months’ notice on termination of his employment but there was no right to pay in lieu. It appeared, therefore, that there was a conflict between the handbook and the contract. The Court, on analysis of the wording, held that there was no conflict and that the right to three months’ notice was impliedly subject to other contractual rights which expressly permit termination with immediate effect.
What can employers learn from this?
The chief lesson in this case takes us back to basics: clarity is vital. If you intend to terminate an employee’s employment with immediate effect and make a payment in lieu of notice, spell it out. Refer to the relevant sections of their employment contract and/or handbook which allows you to do this. If your terminating the employee’s employment in a meeting, make sure you have it all set out in writing for them to take away.
With regards to conflicts with handbooks, its worth (a) making sure that contracts and handbooks do not contradict each other, or if they do, ensure its clear which document trumps the other; and (b) the Geys case shows that rights that may appear in conflict, actually fit together hand in hand. To avoid confusion its helpful to draw the employee’s attention to his or the employer’s rights, when relevant and necessary.