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Andrew Yule

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Legal Commentary: contract termination – it’s not cricket! (part 2)

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In part one of this two part articleAndrew Yule, Assistant Solicitor at Withers LLP looked at the background to and lessons learned from the Supreme Court’s decision in Société Générale, London Branch v Geys. In this concluding part, he offers some practical advice on ways to avoid such situations arising. 

Let’s say your employer has told you that you are dismissed with immediate effect, but has failed to comply with their contractual notice obligations (as happened to Mr Geys).

According to the Supreme Court, contractually speaking you are ‘still in and not out’ – you remain entitled to whatever benefits your contract provides, until you are ‘out’; but what of your statutory rights? 

Qualifying service

You have a statutory right not to be unfairly dismissed but, save in limited circumstances, that right does not apply unless you have been continuously employed for a period of not less than two years (or one year, if your employment commenced before 6 April 2012). This is known as ‘qualifying service’. 

To establish whether you have qualifying service, you need to know your ‘effective date of termination’ (‘EDT’). This is defined by statute (the Employment Rights Act, s.97(1) & (2)) and in most circumstances, it’s straight-forward: 

  • if your “contract of employment is terminated by notice”, the EDT is the date on which that notice expires; or
  • if your “contract of employment is terminated without notice”, the EDT is the date on which the termination takes effect; save that 
  • in either case and for the purposes of establishing whether you have qualifying service, one week will be added to the purported dismissal date, for each complete year of service.

But, imagine a scenario where:

  • you have been employed for 23 months (or 11, if your employment commenced before 6 April 2012)
  • you have a three month contractual notice period
  • your employer purports to terminate your employment with immediate effect and in breach of contract – whether that is because there is no contractual PILON clause or because they have failed to exercise the PILON clause in a manner compliant with the contractual terms (a la SocGen).  

Do you have qualifying service to claim unfair dismissal? 

The established view would be ‘no’. No notice has been given, rather you have been dismissed with immediate effect – so your EDT is the date on which the termination takes effect (see (b) above).

Even allowing for the extra ‘one week for each year of employment’ required under (c) above, your EDT is only 23 months + one week into your employment – so, three weeks short of the magic two year mark for qualifying service. 

However, this is entirely inconsistent with the decision in Geys. It would mean that for the purposes of determining whether you may enforce fundamental, statutory rights, an unlawful termination (in breach of contract) will automatically be effective – whether you seek to affirm the contract or not.

Geys is clear that in exactly the same situation, your contract of employment would continue until you elect to accept the breach, or until it is validly terminated – which in our example may well be 23 months + three months’ contractual notice into the employment (ie, well over two years). 

Does the law really intend it to be possible for an employee to have two termination dates: one statutory; and one later and contractual?  

Can you be ‘out’ as regards your statutory rights but at the same time ‘still in and not out’ as regards your contractual rights? 

Unfortunately the ‘umpires’ in Geys – the Supreme Court judges – did not have to determine this. 

But, even for those who do, plainly have qualifying service, that’s not the end of the confusion

Time limits

Most employment claims are subject to a short, three-month limitation period – an unfair dismissal claim must be brought before the Employment Tribunal, within three months of the EDT. 

But in our example above, what is the EDT? It is established that the EDT for the purposes of calculating the three-month limitation is the date on which the employee learns of his or her dismissal, and that conventional contractual principles do not necessarily apply. This has recently been confirmed by the Supreme Court in Gisda Cyf v Barratt.   

But, Gisda Cyf dismissed Ms Barratt summarily (ie, without notice) for gross misconduct – there was no requirement for notice – so when Ms Barratt learned of her dismissal, it was absolute. Would the decision have been the same in our example above – or, hypothetically, in Mr Geys’ case? 

Certainly one school of thought is that it would; that in Mr Geys’ case, the EDT for the purposes of calculating his three-month time limit would have been 29 November – the date on which he learned that his employment was being terminated ‘with immediate effect’. 

But again, this seems entirely inconsistent with the Supreme Court’s decision in Geys. If an employee, being notified of his dismissal in breach of contract, elects to affirm that contract – thus prolonging it – is it not logical that the date on which the termination takes effect should be the same, both for contractual and for statutory rights? 

Both issues (qualifying service and time-limits) appear ripe for challenge Geys. There must be strong arguments that, however hard your employer may try to get you ‘out’ with immediate effect, unless and until they do so in a way that the contract permits, you may elect to remain ‘still in and not out’, preserving not just your contractual but also your statutory rights. 

Practical tips

  • When dismissing employees – whether relying on a PILON or not – it is essential to consider the contractual termination provisions and the implications of a breach of contract. This is particularly important when dealing with employees who may be close to accruing qualifying service, in respect of whom employers might in the past have felt fairly relaxed.        
  • It is also crucial that employers carefully review their standard contracts. Where they do not currently use a PILON clause, there is now an even stronger argument for including one – without one, it may be impossible to effectively terminate an individual’s employment with immediate effect. Where an employer has an existing PILON clause, it’s important to review the language and mechanics of it, to ensure it works in practise.

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Thank you.