Societe Generale, London Branch v Geys

A repudiatory dismissal that the employee does not accept does not automatically terminate an employment contract at common law. A contract may, however, provide for automatic termination by payment in lieu of notice. Where clear wording makes payment the terminating act, employment ends when the payment is made and no separate communication is implied. A statutory effective date of termination is a separate construct under the Employment Rights Act 1996. Bespoke termination payments may form part of a clean-break agreement. The agreement’s no-proceedings provision is not a pre-existing condition precedent to entitlement. It operates prospectively once the agreement is executed, and breach may require repayment. A tax-efficiency obligation applying to FISS awards does not extend to substitute termination payments or a replacement bonus.

Mr Raphael Geys was summarily dismissed by Société Générale on 29 November 2007. The Bank paid three months’ salary and benefits into his account on 18 December 2007 and later notified him that the payment was in lieu of notice. His employment contract contained a three-month notice clause, a payment-in-lieu provision in an incorporated handbook, remuneration provisions including the FISS, and bespoke termination arrangements requiring a clean-break agreement.

The High Court, in [2010] EWHC 648 (Ch), held that the contract terminated on 6 January 2008, applied the tax-efficiency obligation to part of the termination payment, and rejected the Bank’s forfeiture arguments. The Bank appealed, and Mr Geys cross-appealed. The central issues were when the contract terminated, the scope of the tax-efficiency obligation, and whether pursuing damages claims prevented recovery of the termination payments.

1. Disposition. Lord Justice Rimer gave the judgment, with which Lord Justice Pitchford agreed and Lady Justice Arden agreed, adding observations on the payment-in-lieu issue. The Bank’s appeal was allowed on Grounds 2, 3 and 4, and dismissed on Grounds 1 and 5. Mr Geys’s cross-appeal was dismissed.
2. Repudiatory dismissal and contractual construction. The Court was bound by Gunton v Richmond-upon-Thames London Borough Council [1981] 1 Ch 448 and Boyo v Lambeth London Borough Council [1994] ICR 727 to hold that an unaccepted repudiatory dismissal did not automatically terminate the employment contract. The dismissal nevertheless constituted the statutory effective date of termination for the purposes of the Employment Rights Act 1996. The contract and handbook had to be read together. Clause 13 and paragraph 8.3 were capable of reconciliation and were not in true conflict.
3. Payment in lieu of notice. Paragraph 8.3 clearly provided that making the payment terminated employment with immediate effect. It was unnecessary to imply a requirement that the Bank also notify Mr Geys that it had exercised the right. The contract therefore terminated when the payment was made on 18 December 2007. Payment had to be actually made; sending payment would not have been sufficient.
4. Tax-efficiency obligation. The obligation in clause 5.5 applied to FISS awards but not to the clause 5.15(a) termination payment, which was a substitute for deferred awards, or to the clause 5.24(a) replacement bonus. The judge’s contrary conclusion on the first payment was reversed, while his conclusion on the replacement bonus was upheld.
5. Termination agreement and waiver. Clause 5.16 and Schedules 1 and 2 created a mutual obligation to execute a termination agreement containing the specified termination payments in return for waiving employment-related claims. Payments due under the contractual termination scheme did not include damages for breach of contract already claimed. The arrangement was intended to produce an early, litigation-free clean break.
6. Condition precedent. Paragraph 7(e) of Schedule 1 did not operate as a condition precedent before the termination agreement was executed. Its obligations arose only upon execution and operated prospectively as a condition subsequent. After execution, issuing or pursuing employment-related proceedings could require repayment of the payments and associated costs. Genuine disputes about the amount of the payments could be litigated before execution; the Court expressed no concluded view on the precise remedies for refusal to sign.

1. Court of Appeal (Civil Division): Allowed the Bank’s appeal on Grounds 2, 3 and 4; dismissed Grounds 1 and 5 and Mr Geys’s cross-appeal.
2. High Court of Justice, Chancery Division: In [2010] EWHC 648 (Ch), held that the employment contract terminated on 6 January 2008, applied the tax-efficiency obligation to the clause 5.15(a) payment but not the replacement bonus, and rejected the Bank’s forfeiture arguments.