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Payment in lieu of notice terminates contract

Posted on 12th May 2011
Case law

The Court of Appeal has concluded that a contract of employment came to an end when the employer made a payment in lieu of notice in accordance with its terms.

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Simon Quantrill Simon
Quantrill
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Société Générale v Geys [2011] EWCA Civ 307

You can read our earlier article Breach of contract on termination and the article about the later Supreme Court decision Dismissing and PILON by clicking the links.

Background

We repeat the background for ease of reference: Mr Geys (G) was employed under a contract of employment which included a right for his employer, Société Générale (SG), to terminate his employment and pay him in lieu of notice (PILON). SG called G to a meeting and advised him that his employment was terminating with immediate effect. Subsequently a payment of about £32,000 (equivalent to his entitlement to the PILON) was paid into his bank account. G, unclear about the circumstances surrounding his termination, reserved his position. A little over a month later SG clarified that G's employment had been terminated by way of PILON and the payment into his bank account was the PILON.

The law

A key point in this case is the law surrounding when and how a contract can be ended. The main principle is that a breach of contract will not bring a contract to an end unless and until the breach is accepted by the other party.

The decision

The Court of Appeal upheld the High Court's decision that G's contract did not terminate on the date that he was told his employment was being terminated summarily. At this time SG was in breach of its contract with G as it had not made any PILON to G and, as G did not accept this breach, the contract did not come to an end.

The Court of Appeal disagreed with the High Court's decision that his contract terminated only when SG clarified that G's contract had terminated by a PILON, around a month later. Instead the Court of Appeal held that G's contract terminated when the PILON was paid into G's bank account as this was all that the contract required to bring it to an end. This was the case even though G was not aware of the payment. This point we understand may be subject to a further appeal.

In practice

As we noted in our previous summary, this case is unusual. The date on which the contract ended had a significant impact upon the financial entitlements of G, but the principles remain important.

Unless and until the contract was ended by SG in accordance with the terms of the contract, the contract continued and SG remained liable to payments due under it. It was not terminated until SG complied with the PILON clause and made the PILON to G.

This case concerns the date on which the contract between G and SG came to an end for contractual purposes. This case shows that this date can be different from and does not affect the date on which G was dismissed for the purposes of an unfair dismissal claim. The date of dismissal for these purposes was the date on which G was told his employment was terminating with immediate effect.

Best practice must be for employers to ensure that their actions bring an employee's employment to an end for unfair dismissal and contractual purposes at the same time. Any dismissal should comply with the terms of the contract and be notified to the employee. The letter of dismissal should be clear what the date of termination is, what contractual provision(if any) is relied upon and when any contractual payments will be made. 

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