Thursday, 3 January 2013

Wrongful Repudiation and Effective Termination

[Thanks to Ed McFarlane of Deminos HR for preparing this case summary]
If an employment contract is wrongfully repudiated, does the termination take effect automatically - the 'automatic theory' - or when the other party accepts the repudiation - the 'elective theory'?

When the repudiation is accepted, says the Supreme Court, in Geys v Societe Generale London Branch.

The Claimant was told at a meeting in November 2007 that his employment was to end, with a payment-in-lieu of notice (PILON) being made in December 2007 for his 3 months' notice.  The Claimant reserved his rights and only in January 2008 did he receive a payslip for the PILON. A key question was when the dismissal took effect, as, under the contract, proper notice had to be given to terminate it, and a more generous termination payment was due if termination had taken effect in 2008 rather than 2007.

The Supreme Court decided (4-1, Lord Sumption dissenting) that the elective theory was to be preferred, and termination only took effect in January 2008. Automatic termination would permit a wrongdoer to choose a termination date potentially to the detriment of the wronged party.

Under the terms of the contract, the employer had not given proper notice of termination until January 2008, when the payslip was provided, despite the Claimant clearing his desk and receiving a PILON in December. Therefore, the Claimant qualified for a higher termination payment. Lady Hale's speech at paras. 57-61 comments on the importance of notice of termination being given in 'clear and unambiguous terms'. The fact that a PILON went into the employee's bank account was not sufficient notice to make termination effective: an employee '...should not be required to check his bank account regularly in order to discover whether he is still employed. If he does learn of a payment, he should not be left to guess what it is for and what it is meant to do...'.

Practitioners may wish to note the consequences of the judgment when termination dates and the validity of a termination may affect contractual entitlements. The judgment resolves a long-standing conflict between two theories on wrongful termination, and the same principles would apply to a wrongful termination by employer or employee.

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