The Supreme Court has provided guidance on terminating contracts of employment with a payment in lieu of notice.
The facts
Mr Geys was employed by Société Générale at its London branch. His contract included the following term:
“SG reserves the right to terminate your employment at any time with immediate effect by making a
payment to you in lieu of notice (or if notice has already been given, the balance of your notice
period) based on the value of your: Basic annual salary; and Flexible benefit allowance.”
He was informed at a meeting in November 2007 that his employment was to be terminated and that he would receive termination documentation. Mr Geys wrote to the company asking when he would receive the payment and reserving his rights. A sum equivalent to three months’ pay was made into his bank account on 18 December 2007 but Mr Geys did not become aware of it until 2 January 2008. The bank then wrote to him on 4 January 2008 (received on 6 January 2008) stating that his employment was terminated and that it was exercising its right to make a payment in lieu of notice.
The true date of termination was the main issue in the ensuing litigation as, if it was in December, then Mr Geys would be entitled to a payment of €7 million whereas if it were January the payment would be €12 million. The Supreme Court held that:
- as a matter of contract, it was the making of the payment in lieu of notice which was required to terminate the contract; and
- that did not happen until Mr Geys was notified of such, being the letter received on 6 January 2008.
What was also of significance was the court’s discussion of a longstanding area of uncertainty as to whether a dismissal in breach of contract takes place automatically when communicated by the employer or when accepted by the employee. The court favoured the latter argument.
Commentary
Mr Geys’ case illustrates two important points.
First, if an employer wishes to reserve to itself the right to terminate a contract by making a payment in lieu of a notice entitlement, the clause should be drafted clearly and adhered to. In this case the clause was not as clear as it might be and the bank had not followed it carefully enough.
The second point of importance is that, if there is no clause permitting a payment in lieu of notice, then (save in cases of gross misconduct or negligence) a dismissal purported to be of immediate effect will not as a matter of law terminate the contract until the employee accepts it as doing so or until the expiry of the period during which notice should have run, whichever is the earlier. The point will be of significance for calculating continuity of employment which itself is important for calculating whether statutory rights, in particular the right to claim unfair dismissal, have been acquired.
Resources
Geys v Société Générale London Branch
For further information or to discuss the issues raised, please contact Emma Clark or David Widdowson on +44 (0)20 3051 5711.
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