Société Genérale, London Branch v Geys
Mr Geys was employed by Société Genérale, London Branch from February 2005 as a managing director in the bank. Mr Geys’ contract of employment provided that:
- either party could terminate his employment on giving three months’ written notice; and
- if the bank terminated Mr Geys’ employment in certain circumstances, the bank would have to make a termination payment, which included a “compensation payment”, calculated by reference to the date on which the employment terminated, and Mr Geys would have to enter into a termination agreement.
The bank’s staff handbook contained a payment in lieu of notice (PILON) clause, which reserved the bank’s right to terminate Mr Geys’ employment at any time with immediate effect by making a payment in lieu of notice (or, if notice had already been given, the balance of his notice period).
Mr Geys was summarily dismissed on 29 November 2007, in breach of the terms of the contract. On 18 December 2007, the bank paid into Mr Geys bank account the correct sums due to him under the PILON clause. On 2 January 2008, Mr Geys’ solicitors wrote to the bank saying that Mr Geys had decided to affirm his contract and requested further details of the termination payment. On 4 January 2008, the bank wrote to Mr Geys confirming that it had given notice to terminate his employment with immediate effect on 29 November 2007 and that his PILON had been paid into his bank account on 18 December 2007.
Mr Geys brought claims for wrongful dismissal and breach of contract, asserting that his employment did not terminate until 6 January 2008 (when he was deemed to have received the bank’s letter of 4 January), meaning he was entitled to a termination payment of more than €12.5 million.
The bank’s case was that the contract was terminated on 29 November 2007, meaning Mr Geys was entitled to a termination payment of no more than €7 million.
The Supreme Court held that, where an employer repudiates a contract of employment, the contract will end only when the employee elects to accept the repudiation (the “elective theory”). The contract does not come to an end immediately on repudiation (the “automatic theory”). Further, Mr Geys’ employment did not terminate until he received the bank’s letter of 4 January 2008 confirming that it had exercised the PILON clause in the handbook, on 6 January 2008.
The Supreme Court held that it was “an obviously necessary incident of the employment relationship that the other party is notified in clear and unambiguous terms that the right to bring the contract to an end is being exercised, and how and when it is intended to operate”. An employee should not be required to check his or her bank account to discover if he or she is still employed.
This case highlights the importance of identifying the termination date for contractual purposes as it can, as it did in this case, make a significant difference to the payments due to an employee on termination.
There has been considerable debate over whether or not a repudiatory breach of contract automatically ends a contract of employment. This case confirms that the “elective theory” will be applicable, meaning that the question for an employee is whether or not he or she wishes to affirm the contract, or accept the repudiation and treat the contract as having ended.
The case also highlights that there is potentially a difference in an employee’s effective date of termination, for the purposes of a statutory claim such as unfair dismissal (which in this case was likely to be 29 November 2007), and the date of his or her contract terminated for the purposes of a contractual claim (which in this case was held to be 6 January 2008).
Employers need to make sure that they have regard to the termination provisions, particularly with regard to PILON clauses, in an employee’s contract of employment and that it is made expressly clear to an employee when a PILON clause is being exercised.
Nicholas Jew, partner, DLA Piper
Practical guidance from XpertHR on termination of contracts and payments in lieu of notice