It should be simple to establish when an employee’s contract is terminated. But like cricket umpires, employment lawyers often can’t agree whether someone is ‘in’ or ‘out’. Stepping up to the crease, Andrew Yule, Assistant Solicitor, Withers LLP.
When an employee’s contract is actually terminated has been tested in law many times. With such cases as Société Générale, London Branch v Geys, there is always plenty of beguiling detail, much like the game of cricket. Mr Gey’s contract with SocGen included a three-month notice period. SocGen also had a contractual right to: “terminate your employment at any time with immediate effect by making a payment to you in lieu of notice”. In fact, on termination, events proceeded as follows: On 29 November 2007 SocGen met with Mr Geys and handed him a letter notifying him that they had “decided to terminate your employment with immediate effect”. This was his last day in the office.
On 7 December 2007, Mr Geys' lawyers sent a letter to SocGen, reserving his rights. On 18 December 2007, SocGen paid the equivalent of three months' basic salary and flexible benefits into his bank account (Mr Geys did not notice the payment until a later date). On 4 January 2008 the Bank wrote to Mr Geys stating that his employment had terminated “with immediate effect on 29 November 2007 (your Termination Date)’ and that “your notice payment was credited to your bank account on 18 December and your final salary slip and P45 was sent to your home address”. Mr Geys was deemed to have received this letter on 6 January 2008. Following his termination, Mr Geys sued for a particular contractual termination payment. The determining factor in the calculation of that payment was Mr Geys’ actual date of termination – the value increased significantly if it was found that he was employed beyond 31 December 2007. SocGen argued that Mr Geys' employment terminated on 29 November, or at the latest, when his notice was paid on 18 December; whereas Mr Geys contended that it terminated on 6 January.
The Supreme Court found in favour of Mr Geys. SocGen only validly exercised its contractual right to terminate when Mr Geys received the letter of termination on 6 January 2008. This was ruled to be his termination date, and his contractual entitlements were calculated accordingly. Key considerations: contractual rights; The logic in this decision was as follows: An employee has contractual rights that dictate how and when their employment contract may be terminated; An employee has a notice period (here, three months); Employers frequently reserve the right to terminate an employee’s contract immediately and to pay them instead of ('in lieu of') continuing their employment during the notice period (a 'PILON' clause). If an employee’s contract is terminated in a way that breaches these rights – for example by providing less than the employee’s contracted notice period and/or by failing to use its right under a PILON (if there is one), the employee has the option to either: accept the breach (and attempt to sue for damages, if any); or affirm the contract, thereby holding the employer to its terms and extending their contract (this emphasis is important) until it is validly terminated. Thus, an alleged termination that is in breach of contract will not automatically end the contract. This seems entirely fair, why should an employer automatically benefit if they fail to do what they have contractually agreed? The principle works both ways, employees are unable to simply walk away without giving their employer due notice.
So why did I emphasise the contract above? Employment lawyers are always at pains to explain that employees have contractual rights, to salary, notice etc. and that they have statutory rights (most pertinently, the right not to be unfairly dismissed). And here is where confusion can arise. In the case of Mr Geys, SocGen informed him that he was dismissed with immediate effect, but they failed to meet their contractual notice obligations to him. Thus, according to the Supreme Court, as regards his contract, Mr Geys was ‘still in and not out’ – so he continued to be entitled to the benefits provided in his contract, until he was ‘out’, that is until they complied with their obligations under the contract.
