When does the contract of employment end?

Where there is a repudiatory breach of contract, that is a fundamental breach going to the heart of the employment contract, does the contract automatically end?

No it does not according to the recent Supreme Court case of Geys v Société Générale, London Branch. In fact, the contract is not brought to an end unless and until the innocent party elects to accept the breach.

Raphael Geys was employed as Managing Director of European Fixed Income Sales, Financial Institutions at Société Générale and was entitled to three months' notice under his contract. The staff handbook reserved the right "to terminate his employment with immediate effect…by making a payment in lieu of notice" (PILON). On 29 November 2007, Mr Geys was called into a meeting and handed a letter stating that the Bank had decided to terminate his employment with immediate effect but made no reference to the PILON clause.

The precise date of termination of his contract was significant because if it was before the end of 2007 his bonus entitlement would have been considerably less than if in January 2008.

The Bank made a payment into Mr Geys’ bank account before Christmas, but it was not until the New Year that the Bank sent him a letter, giving a breakdown of the monies paid and confirming that it had made a payment in lieu in accordance with the staff handbook.

The Supreme Court decided that the Bank had not, on 29 November, terminated the contract in accordance with its provisions (either by giving notice or making a PILON), with the result that the Bank had acted in repudiatory breach of contract. The repudiation had not been accepted by Mr Geys (because he reserved his position) - hence there was no termination of the contract. The Court accepted, however, that had the employee been given a cheque representing his PILON at the 29 November meeting, his employment would have been validly terminated on that date.

Lady Hale confirmed that the employee also had to be notified of the fact that the payment had been made: "He should not be required to check his bank account regularly in order to discover whether he is still employed".

The contract could only be terminated under the PILON if the employer made both the payment and gave the employee notice in 'clear and unambiguous terms' that it was exercising its right to do so and this did not in fact occur until 6 January 2008.

A story from earlier this year.

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