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Geys –v– Société Générale: The Implications for PILON Clauses

Handshake with Coins (123rf ref 8989911)

SUMMARY: In light of the recent Supreme Court case of Geys –v– Société Générale (‘SG’) employers are encouraged to ensure that their usage of PILON clauses would be effective to terminate employment with immediate effect.

FACTS

Mr Geys was employed by SG from February 2005. Mr Geys had:

  1. a written contract which provided that either party could terminate the contract ‘on the expiry of 3 months’ written notice of termination;’ and                                                                                                                                              .                       .
  2. a handbook which contained a payment in lieu of notice (PILON) clause allowing employment to be terminated at any time with immediate effect subject to the employee being paid their salary for the duration of the notice period.

On 29 November 2007, Mr Geys was dismissed with immediate effect and was handed a letter confirming the same.

On 18 December 2007, without notice or warning SG paid a payment into Mr Geys’ bank account. Mr Geys claimed he became aware this sum had been paid at some point before the end of the year.

On 2 January 2008, Mr Geys wrote to SG stating he considered SG had committed a repudiatory breach of contract, that he did not accept this repudiatory breach and that he had decided to affirm his contract.

In light of this letter, SG wrote to Mr Geys on 4 January 2008 (Mr Geys was deemed to have received this letter on 6 January 2008). The letter made it clear that SG was purporting to dismiss under the PILON clause and that this was the reason for the payment on 18 December 2007.

The date on which Mr Geys’ employment terminated was unclear and it became a contentious issue between Mr Geys and SG;

  1. a termination date after 31 December 2007 meant Mr Geys would be entitled to a high bonus payment; whereas                                                                                                                                                          .                                                                                      .
  2. a termination date before the 31 December 2007 meant Mr Geys would be entitled to a significantly lower bonus payment.

DECISION

Ultimately the parties had to seek the intervention of the Supreme Court which decided as follows:

  1. the employment contract did not terminate automatically on 29 November 2007 when SG purported to terminate Mr Geys’ employment with immediate effect because Mr Geys did not accept this repudiatory breach; and                                                                                                                                                                                   .
  2. there was a requirement for Mr Geys to be notified in clear and unambiguous terms that the right to end the contract was being exercised and how and when the PILON was intended to operate. It was not until 6 January 2008 that the PILON clause was validly exercised, i.e. the date when Mr Geys was deemed to have received the letter sent to him by SG making it clear SG was purporting to dismiss him under the PILON clause and this was the reason for the payment made on 18 December 2007.

The result was that Mr Geys qualified for the higher bonus payment as his employment terminated after 31 December 2007.

What is clear from the decision is that if SG had given Mr Geys a cheque on 29 November 2007 and confirmed he was being dismissed with immediate effect, his dismissal would have taken place on that day. He would have therefore only qualified for the lower bonus payment.

Whilst PILON clauses are still a lawful and practical way in certain circumstances to terminate an employee’s employment contract, employers do need to ensure that when making a PILON under a PILON clause they notify the employee in clear and unambiguous terms that the right to end the contract with immediate effect is being exercised under the PILON clause.

Finally, a word of caution when terminating a contract and making payments in lieu of notice, if there is no contractual right permitting you as the employer to terminate in this way, that action could give rise to a breach of contract. A consequence of this breach is that the organisation will lose the right to rely on the valuable protection given by contractual provisions relating to confidentiality and post-termination restrictions. If there is no PILON clause and you are considering dismissing by making a PILON, we would recommend taking legal advice.

If you would like advice on PILON clauses or assistance to draft PILON clauses in your employment contracts please contact us.

Joanne Duck, Legal Assistant.

Contact Information

fgmedia@floydgraham.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.

Updated: by FG Solicitors
Call us on:  0808 172 93 22

GEYS €V€ SOCIéTé GéNéRALE: THE IMPLICATIONS FOR PILON CLAUSES

Handshake with Coins (123rf ref 8989911)

SUMMARY: In light of the recent Supreme Court case of Geys –v– Société Générale (‘SG’) employers are encouraged to ensure that their usage of PILON clauses would be effective to terminate employment with immediate effect.

FACTS

Mr Geys was employed by SG from February 2005. Mr Geys had:

  1. a written contract which provided that either party could terminate the contract ‘on the expiry of 3 months’ written notice of termination;’ and                                                                                                                                              .                       .
  2. a handbook which contained a payment in lieu of notice (PILON) clause allowing employment to be terminated at any time with immediate effect subject to the employee being paid their salary for the duration of the notice period.

On 29 November 2007, Mr Geys was dismissed with immediate effect and was handed a letter confirming the same.

On 18 December 2007, without notice or warning SG paid a payment into Mr Geys’ bank account. Mr Geys claimed he became aware this sum had been paid at some point before the end of the year.

On 2 January 2008, Mr Geys wrote to SG stating he considered SG had committed a repudiatory breach of contract, that he did not accept this repudiatory breach and that he had decided to affirm his contract.

In light of this letter, SG wrote to Mr Geys on 4 January 2008 (Mr Geys was deemed to have received this letter on 6 January 2008). The letter made it clear that SG was purporting to dismiss under the PILON clause and that this was the reason for the payment on 18 December 2007.

The date on which Mr Geys’ employment terminated was unclear and it became a contentious issue between Mr Geys and SG;

  1. a termination date after 31 December 2007 meant Mr Geys would be entitled to a high bonus payment; whereas                                                                                                                                                          .                                                                                      .
  2. a termination date before the 31 December 2007 meant Mr Geys would be entitled to a significantly lower bonus payment.

DECISION

Ultimately the parties had to seek the intervention of the Supreme Court which decided as follows:

  1. the employment contract did not terminate automatically on 29 November 2007 when SG purported to terminate Mr Geys’ employment with immediate effect because Mr Geys did not accept this repudiatory breach; and                                                                                                                                                                                   .
  2. there was a requirement for Mr Geys to be notified in clear and unambiguous terms that the right to end the contract was being exercised and how and when the PILON was intended to operate. It was not until 6 January 2008 that the PILON clause was validly exercised, i.e. the date when Mr Geys was deemed to have received the letter sent to him by SG making it clear SG was purporting to dismiss him under the PILON clause and this was the reason for the payment made on 18 December 2007.

The result was that Mr Geys qualified for the higher bonus payment as his employment terminated after 31 December 2007.

What is clear from the decision is that if SG had given Mr Geys a cheque on 29 November 2007 and confirmed he was being dismissed with immediate effect, his dismissal would have taken place on that day. He would have therefore only qualified for the lower bonus payment.

Whilst PILON clauses are still a lawful and practical way in certain circumstances to terminate an employee’s employment contract, employers do need to ensure that when making a PILON under a PILON clause they notify the employee in clear and unambiguous terms that the right to end the contract with immediate effect is being exercised under the PILON clause.

Finally, a word of caution when terminating a contract and making payments in lieu of notice, if there is no contractual right permitting you as the employer to terminate in this way, that action could give rise to a breach of contract. A consequence of this breach is that the organisation will lose the right to rely on the valuable protection given by contractual provisions relating to confidentiality and post-termination restrictions. If there is no PILON clause and you are considering dismissing by making a PILON, we would recommend taking legal advice.

If you would like advice on PILON clauses or assistance to draft PILON clauses in your employment contracts please contact us.

Joanne Duck, Legal Assistant.

Contact Information

fgmedia@floydgraham.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.