Societe Generale, London Branch v Geys

This Court of Appeal considered (i) whether an employer's payment in lieu of notice (PILON) under a staff handbook provision terminates the employment contract on payment alone or requires communication of the employer's election, (ii) whether a handbook PILON conflicted with a contractual notice clause, (iii) the scope of a contractual obligation to use all reasonable endeavours to make awards tax-efficient, and (iv) whether a leaver termination agreement and associated waiver provisions operated as a condition precedent to entitlement to bespoke termination payments.

The court held that paragraph 8.3 of the Handbook unambiguously provided that making a payment in lieu of notice terminates the employment "with immediate effect" and so the Bank’s payment on 18 December 2007 terminated the contract then; there was no repugnant conflict with clause 13 of the contract and reconciliation of contract and handbook terms was required. The court held that the clause 5.5 tax-efficiency obligation applied to FISS awards already made but retained under the deferral scheme (and so to the clause 5.15(a) acceleration of those awards) was incorrect: clause 5.5 did not extend to the clause 5.15(a) termination payment (but the judge was correct that the separate replacement bonus under clause 5.24 was not within clause 5.5). Finally, the court held that the Schedule 1 waiver/repayment provisions would bite only if and when a termination agreement in the prescribed form was executed; those waiver/repayment provisions are prospective (condition subsequent upon execution), not a retrospective condition precedent which would disentitle a leaver to the contractual termination payments merely because he had issued or pursued claims before the termination agreement was signed.

This was an appeal by Société Générale (the Bank) against a Chancery Division order giving judgment to its former employee, Mr Raphael Geys, for termination sums and consequential relief. Mr Geys had been summarily dismissed on 29 November 2007 and claimed substantial termination payments and damages; the Bank contended that lesser contractual sums were due and that various events in 2007 precluded larger payments.

Procedural posture: Appeal from Mr George Leggatt QC sitting as Deputy High Court Judge ([2010] EWHC 648 (Ch)). The Court of Appeal heard submissions and reserved on five grounds of appeal and a respondent’s notice.

Key factual background: Mr Geys had a written employment contract (including clause 13: three months’ notice, clause 17: contract prevails over Handbook), and a Staff Handbook containing paragraph 8.3 allowing the Bank to terminate employment "with immediate effect" by making a PILON calculated by reference to salary and benefits. The Bank made a payment into Mr Geys’s bank account on 18 December 2007 described in a payslip as "in lieu pay". A Human Resources letter dated 4 January 2008 set out termination details and was deemed served on 6 January 2008. The contract also contained detailed FISS bonus provisions (clauses 5.2–5.7), a tax-efficiency obligation (clause 5.5), deferral and forfeiture rules, bespoke termination payments (clauses 5.14–5.16; schedule 1 and 2) and a draft termination agreement which, if executed, would require a waiver of claims and provide for repayment of termination sums if claims were pursued.

Primary issues before the court: (i) whether the summary dismissal of 29 November 2007 or the PILON payment of 18 December 2007 (or the HR letter of 4 January 2008) terminated the contract at common law; (ii) whether paragraph 8.3 conflicted with clause 13 so as to be inapplicable; (iii) whether clause 5.5 obliged the Bank to adopt tax-efficient mechanisms in respect of termination payments under clause 5.15(a) or the replacement bonus under clause 5.24; and (iv) whether the requirement to sign a termination agreement (and the waiver/repayment provisions) operated retrospectively as a condition precedent to entitlement to the termination payments.

Court’s reasoning and conclusions: On termination timing the court held that unaccepted repudiatory dismissal (Gunton/Boyo) does not of itself bring the contract to an end; however, the Handbook paragraph 8.3 was clear that payment in lieu terminates the contract "with immediate effect" and needed no separate notification to be effective. Thus the contract was terminated by the payment on 18 December 2007. On construction the court reconciled clause 13 and paragraph 8.3, rejecting any supposed repugnancy. On the tax-efficiency obligation the court held clause 5.5 did not apply to the clause 5.15(a) termination payment (which was a distinct contractual replacement payment on termination) and agreed with the judge that clause 5.24 replacement bonus was not within clause 5.5. On the termination-agreement waivers the court held clause 5.16 and Schedule 1 require the parties to execute a termination agreement once amounts are ascertained, and that paragraph 7(e) operates prospectively once such agreement is executed; it does not operate retrospectively as a condition precedent to bar entitlement to those contractual termination payments merely because claims were brought before the execution of the compromise agreement.

Wider comment: The court observed the distinction between common law termination and statutory notions such as the effective date of termination for the Employment Rights Act 1996, noting Gisda Cyf v Barratt on the statutory construct of an effective date for tribunal time limits; it emphasised contractual construction principles and the need to give effect to the parties’ clear words.

Appeal allowed in part and dismissed in part. The Court allowed the Bank’s appeal on Grounds 2, 3 and 4 (holding that the PILON payment on 18 December 2007 terminated the employment; that the clause 5.5 tax-efficiency obligation did not extend to the clause 5.15(a) termination payment; and that the termination agreement regime operates as a prospective mechanism to secure a clean break), but dismissed the Bank’s Grounds 1 and 5 and dismissed Mr Geys’s cross-appeal. The court reconciled contract and handbook terms, construed the remuneration and termination provisions, and ruled that Schedule 1 waiver/repayment provisions become operative only on execution of the termination agreement and are not retrospective conditions precedent to entitlement to the contractual termination payments.

Appeal from High Court of Justice, Chancery Division (Deputy High Court Judge George Leggatt QC), [2010] EWHC 648 (Ch); permission to appeal granted to the Court of Appeal which delivered judgment on 30 March 2011 ([2011] EWCA Civ 307).