The Supreme Court has held in Geys v Société Générale, London Branch [2012] UKSC 63 that a payment in lieu of notice (‘PILON') clause will only be effective once the employee has been notified in clear and unambiguous terms that it is being exercised and how and when it is intended to operate.

Mr Geys was the MD of Société Générale (‘SG') in London.  The SG handbook included a PILON clause but was silent on how SG should notify an employee when it was exercising the right to pay in lieu of notice.  In November 2007, SG decided to terminate Mr Geys' contract with immediate effect and wrote him a letter which simply said that his employment was terminated "with immediate effect".  SG then paid c.£32,000 into Mr Geys' bank account but did not inform him that the payment had been made or why.  Mr Geys became aware of the payment in December 2007.  On 4 January 2008, SG wrote to Mr Geys informing him that SG had given him notice to terminate his contract with immediate effect in November 2007 and that SG had exercised its PILON right by making the payment in December 2007.  Mr Geys received the letter on 6 January 2008.  Mr Geys disputed his termination date, largely because he would be entitled to an additional €4.5 million in bonus payments if his employment had ended in 2008 rather than 2007.

The case went all the way to the Supreme Court which held that Mr Geys' employment had ended on 6 January 2008.  Mr Geys should not have been expected to check his bank account just in case a PILON payment had been made or be left to guess what a payment might be for.  SG's letter of 4 January 2008 was the first occasion on which clear notification was received by Mr Geys that SG was exercising its right to pay in lieu.  This decision is a warning to employers who wish to pay in lieu of notice; unless and until the employer notifies the employee in clear and unambiguous terms that it is exercising its right under a PILON clause, that employee's employment is likely to continue.  As demonstrated by this case, misjudging the necessary practical steps can lead to significant financial consequences.