In Geys v Société Générale, the Supreme Court has held that an employee’s employment contract continued until the date on which he received unequivocal notice that his employer was terminating his employment by making a payment in lieu of notice (“PILON”).
Mr Geys was informed his employment was terminated "with immediate effect" on 29 November 2007 and was given a letter confirming this. However, the letter made no mention of a PILON. His contract provided for a termination payment if his employment was terminated without cause. The bank then provided Mr Geys with a draft termination agreement on 10 December 2007 and a letter setting out the proposed termination payment, the calculation of which was disputed by Mr Geys.
On 18 December 2007, a sum was paid into Mr Geys’ bank account (his PILON), although no explanation was provided as to what the sum was for. Mr Geys’ solicitors wrote to the bank on 2 January 2008 stating that Mr Geys had decided to affirm his contract. The bank replied on 4 January 2008 stating that it had given Mr Geys notice to terminate his employment with immediate effect on 29 November 2007 and his PILON had been credited to his account on 18 December 2007.
Crucially, if Mr Geys' employment terminated after 31 December 2007, he would be entitled to an additional €4.5m. The bank argued Mr Geys’ contract terminated on 29 November 2007, notwithstanding any breach, as it wasn’t open to Mr Geys to affirm the contract after the bank’s repudiatory breach. If that wasn’t correct, the contract ended on 18 December 2007, when the PILON was made. The decision of the Supreme Court addressed two central points:
1. If an employer repudiates an employment contract – does it end automatically?
The question here was whether a repudiatory breach of contract by an employer automatically ends the employment relationship (known as the "automatic theory") or whether the employment only ends when the employee elects to accept the repudiation as having this effect (known as the ‘elective theory’). The Supreme Court confirmed that the elective theory applied. Therefore, if an employer wrongfully dismisses an employee or an employee wrongfully resigns (i.e. without proper notice), the innocent party can decide whether to treat the contract as at an end or not.
2. On what date does the employment terminate for contractual purposes?
In light of the preference of the "elective theory", the majority of the Supreme Court went on to hold that Mr Geys’ employment didn’t terminate until 6 January 2008, when Mr Geys received the bank’s letter of 4 January 2008. It was on this date that the contractual right to terminate by making a PILON, as set out in the bank’s staff handbook, had been validly exercised. Prior to that date, the bank had purported to terminate the contract in breach, and Mr Geys hadn’t elected to accept the breach. Whilst the PILON was made on 18 December, Mr Geys hadn’t been notified what the payment was for. The 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". Accordingly, it was necessary that Mr Geys not only received the PILON, but also notification from the bank in clear terms that such a payment had been made and that it was made in the exercise of the contractual right to terminate his employment with immediate effect: he should not be required to check his bank account in order to find out if he remained employed.
Impact for Employers
- Employers may wish to review the payment in lieu of notice provisions in their standard form contracts and consider updating these to ensure that they set out clearly how an employee will be notified of the termination of their employment contract if a payment in lieu is to be made.
- Employers should be aware that the date on which the contractual relationship ends can potentially be different to the end date of employment for statutory purposes. In Mr Geys' case, it appears that the effective date of termination for statutory unfair dismissal purposes would have been 29 November 2007, although the date of termination for contractual purposes was not until 6 January 2008.