Summary and implications
This month’s attention is on a recent Court of Appeal decision which focuses on the interrelation between summary dismissals, PILON (payment in lieu of notice) payments and repudiatory termination. In brief, we suggest that employers:
- Revisit their contractual termination provisions and day-to-day practices in light of the decision in Société Générale v Geys; and
Consider amending contractual PILON clauses to provide expressly for:
- Termination to take effect as soon as the employer gives notice to an employee; and
- A post-termination period within which the PILON payment can be made.
Termination under a PILON clause: to guarantee certainty you must tighten up your provisions on notice and PILON payments
It is always helpful to learn from someone else’s experience, and this month we turn our attention to the litigation between Société Générale and Mr Geys. As you probably know, many service agreements contain a pay in lieu of notice clause (PILON) which allows an employer to summarily dismiss an employee with payment for the notice period. Some contracts do not contain a PILON clause, often for tax purposes, but an employer may nonetheless decide to terminate an employee’s engagement summarily and make a payment in lieu of the contractual salary and benefits which would otherwise have been received during the notice period. The thinking behind this approach is that the payment will exhaust all (or most) of the employee’s damages claim for wrongful termination. This is true in most, but not all, cases since summary termination without cause and in the absence of a PILON clause may amount to repudiatory breach of contract. As the law currently stands, it is open to the employee not to accept the breach and insist that the contract (and notice period) run its course. It is in this context that Société Générale and Mr Geys ended up in the Court of Appeal arguing over some €2.5m worth of damages.
The brief background to the case is as follows:
- Mr Geys’ contract of employment provided for termination by three months’ written notice by either party;
- Société Générale's Handbook, which was incorporated into Mr Geys’ contract, provided for termination “with immediate effect by making a payment to you in lieu of notice…”;
- On 29 November 2007, Mr Geys was told that his employment was terminated “with immediate effect”. He was given a letter to the same effect and was escorted out of the building;
- After exchange of correspondence with Mr Geys’ solicitors, Société Générale made a PILON payment to Mr Geys on 18 December 2007;
- On 2 January 2008, Mr Geys’ solicitors informed Société Générale that Mr Geys has decided to affirm his contract of employment; and
- On 4 January 2008, Société Générale wrote to Mr Geys, stating that it had given notice to terminate the employment with immediate effect on 29 November 2007 and that the PILON payment was credited into Mr Geys’ account on 18 December 2007.
One of the central issues in the case concerns the date of termination of Mr Geys’ employment: was it 29 November 2007, 18 December 2007 or 6 January 2008 (when Mr Geys was deemed to have received the 4 January letter)?
On the terms of the PILON clause in Mr Geys’ contract, the Court of Appeal held that termination could be effected by, and on the date of, the PILON payment without further notice. As a result, the termination date was held to be 18 December 2007.
The upshot of this decision (subject to any appeal to the Supreme Court) is as follows:
- Termination in breach of the terms of a service agreement is a repudiatory breach. Although many employees will accept the breach (e.g. because the employer subsequently makes a payment in lieu of notice), unless the Supreme Court rules otherwise, employees are not obliged to accept the breach. If summary termination is going to prejudice an employee, the terms of a service agreement must be strictly met. Remember also that you may not be able to dismiss an employee summarily in order to deprive him/her of a benefit;
- To avoid some of the issues that came up in the Société Générale case, consider amending the terms of a PILON clause so that it allows you to terminate summarily with immediate effect on the giving of the notice, but make the PILON payment within a certain period of time or on the following pay day, for example;
- Alternatively, adopt a practice of giving the notice of termination and making the PILON payment on the same date;
- If this is not feasible and a dispute is likely to take place, consider placing an employee on garden leave from the notional date of termination, and effect summary termination shortly after, on the date the PILON payment is made;
- Finally, bear in mind that if the Court of Appeal is correct, an employee could end up with two different ‘termination’ dates, one for unfair dismissal purposes and one for contractual claims. This could work to your advantage.