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Andrew Yule

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Legal Commentary: contract termination – it’s not cricket! (part 1)


The rules of cricket are notoriously complex. As a child, I had a humorous tea-towel – "The Rules of Cricket Explained to a Foreigner" – which included the following line:

"Each man that’s in the side that’s in goes out, and when he’s out he comes in and the next man goes in until he’s out. When they are all out, the side that’s out comes in and the side that’s been in goes out and tries to get those coming in, out. Sometimes you get men still in and not out…  there are two men called umpires who stay out all the time and they decide when the men who are in are out…."

Deciding whether and when someone’s employment has terminated should be simple, by comparison. But it’s not. Even the ‘umpires’ (employment lawyers – although, we’re often less impartial) can’t always agree when someone’s ‘in’ and when they’re ‘out’.  
The difficulties were recently highlighted by the Supreme Court’s decision in Société Générale, London Branch v Geys. 
Mr Geys’ contract with SocGen had 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". 
The timeline: 
  • 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" – he was then escorted from the building and did not return.
  • On 7 December 2007, Mr Geys’ lawyers wrote 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 (although Mr Geys did not immediately become aware of the payment)
  • Then, 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. 
The actual date of termination of Mr Geys’ contract of employment was crucial in determining the value of a contractual termination payment – the value increased significantly if his employment continued beyond 31 December 2007 – thus the litigation.
SocGen argued that Mr Geys’ employment terminated on 29 November, or 18 December at the latest; Mr Geys argued that it ended on 6 January. 
The Supreme Court agreed with Mr Geys. SocGen only validly exercised its contractual right to terminate, on 6 January 2008 – when Mr Geys was deemed to have received the letter of 4 January 2008 – and that was his termination date for the purposes of valuing his contractual entitlements to the disputed, contractual termination payment.  
The logic for the Supreme Court’s decision is as follows: you have contractual rights that determine how and when your employment contract may terminate; you will have a notice period (say, three months); and often your employer will have a right to terminate your contract immediately and to pay you instead of (‘in lieu of’) continuing to employ you for that notice period (a ‘PILON’ clause).

If your employer terminates your employment in breach of that contract – be it, by incorrectly giving you less than your stated notice period and / or by failing to correctly exercise its right under a PILON (if there is one) – you may elect to either:

  • accept the breach (and sue for damages – if any)
  • or affirm the contract, holding your employer to its terms and thus prolonging your contract (the emphasis here is important) until it is validly terminated. Thus, a purported termination that is in breach of contract will not automatically be effective.
So far, so good – why should your employer automatically benefit from failing to do what they have contractually agreed they should do? As you would expect, the same principle works both ways – you can’t just walk away, without giving your employer proper notice.   
Why my emphasis on your contract? 
One of the first things an employment lawyer will explain to a client, is that you have contractual rights (to salary, notice etc) and you have statutory rights (crucially, the right not to be unfairly dismissed).
And this is where the confusion arises.    

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