Société Générale, London Branch v Geys

A repudiatory breach of an employment contract does not automatically end the contract. It ends only when the innocent party accepts the repudiation through a conscious intention or conduct inconsistent with continuation.

An employer exercising a contractual payment-in-lieu-of-notice right must make the payment and clearly and unambiguously notify the employee that it is exercising that right to terminate employment immediately. A bank credit which leaves the employee to infer its purpose is insufficient.

Apparently inconsistent contractual provisions should be reconciled where that can fairly be done. A clause excluding liability for breach must also be clearly expressed. Ambiguity is construed strictly against the party relying on the exclusion.

The appellant was summarily dismissed by the respondent bank on 29 November 2007. A payment equivalent to three months’ salary and benefits was credited to his account on 18 December, but the bank did not clearly explain until a letter deemed received on 6 January 2008 that the payment exercised its contractual payment-in-lieu-of-notice right. The termination date substantially affected his contractual compensation.

The High Court held that employment ended on 6 January 2008: [2010] EWHC 648 (Ch), [2010] IRLR 950. The Court of Appeal held that it ended on 18 December 2007: [2011] EWCA Civ 307, [2011] IRLR 482.

The appeal concerned whether wrongful dismissal automatically terminated an employment contract, when the payment-in-lieu clause was validly exercised, whether that clause conflicted with the contractual notice provision, and whether the termination arrangements excluded claims for wrongful dismissal and breach of a tax-efficiency obligation.

1. Disposition. The appeal was allowed, the bank’s cross-appeal was dismissed and the Deputy High Court Judge’s order was restored. Lord Hope, Lady Hale, Lord Wilson and Lord Carnwath formed the majority on the disputed repudiation and termination issues. Lord Sumption dissented on those issues.

2. Repudiation. Per Lord Wilson, with Lord Hope, Lady Hale and Lord Carnwath agreeing, the elective theory applies to employment contracts. A repudiatory dismissal or resignation does not itself terminate the contract. Termination requires the innocent party’s acceptance. The contrary automatic theory could reward the repudiator by allowing that party to select a financially advantageous termination date. The contract of employment remains governed by ordinary contractual principle, although the remedies available under such a contract may be restricted.

   Acceptance must be real. It requires a conscious intention to end the contract or conduct inconsistent with its continuation. The majority approved the elective approach in Gunton v Richmond-upon-Thames London Borough Council [1981] Ch 448 and rejected the automatic approach adopted in Sanders v Ernest A Neale Ltd [1974] ICR 565.

3. Exercise of the payment-in-lieu right. Per Lady Hale, with Lord Hope, Lord Wilson and Lord Carnwath agreeing, clear and unambiguous notification is a necessary incident of the employment relationship. An employee must be told that payment has been made in exercise of the contractual right to terminate immediately, and how and when the termination operates. Payment into a bank account does not itself communicate its legal purpose. The bank first gave effective notification by its letter deemed received on 6 January 2008. Employment therefore ended on that date.

4. Contractual provisions. Per Lord Hope, paragraph 13 of the contract and paragraph 8.3 of the staff handbook were capable of reconciliation. Paragraph 13 supplied one method of termination; the payment-in-lieu provision qualified it by supplying another. The bank was contractually entitled to use that method, although it failed to exercise it effectively before January 2008.

5. Termination agreement and damages. Paragraph 5.16 imposed mutual obligations: the bank had to make the termination payment and the employee had to enter the prescribed termination agreement. Nevertheless, the agreement did not clearly exclude claims for wrongful dismissal or breach of the tax-efficiency obligation. Clauses purporting to exempt a contracting party from liability must be clearly and unambiguously expressed and construed strictly against the proferens. The employee could pursue those damages claims without forfeiting the termination payment.

1. United Kingdom Supreme Court: The employee’s appeal was allowed, the bank’s cross-appeal was dismissed and the High Court order was restored: [2012] UKSC 63.
2. Court of Appeal: The bank’s appeal was allowed on the termination, tax-efficiency and termination-agreement issues but dismissed on the repudiation and remaining waiver issues. The employee’s cross-appeal was dismissed, and termination was held to have occurred on 18 December 2007: [2011] EWCA Civ 307, [2011] IRLR 482.
3. High Court: The Deputy High Court Judge held that employment ended on 6 January 2008 and gave judgment for the employee in a sum to be assessed: [2010] EWHC 648 (Ch), [2010] IRLR 950.