Geys v Société Générale, London Branch

The Supreme Court held that a repudiation of a contract of employment does not automatically terminate the contract; the innocent party can elect whether to accept the repudiation or to treat the contract as subsisting, subject to the ordinary contractual qualification that performance must be possible without the repudiating party's co-operation (the elective theory). The court held that, on the facts, the Bank’s right to terminate by payment in lieu of notice (PILON) was not validly exercised until the employee was given clear written notification that the payment was made in exercise of that contractual right, and so the contract terminated on 6 January 2008 when the letter of 4 January 2008 was deemed received.

On construction of the termination/settlement provisions (paragraph 5.16 and Schedules 1 and 2), the court held that the contractual scheme was ambiguous and must be construed contra proferentem in favour of the employee. The employee was therefore entitled to maintain claims for wrongful dismissal and for breach of the tax-efficiency obligation in paragraph 5.5 despite entitlement to the termination payment.

Background and procedural history. The appellant, a senior executive, was dismissed by his employer and disputed the date of termination because the contractual termination payment depended on whether the employment terminated before or after 31 December 2007. At first instance the Deputy High Court Judge found termination on 6 January 2008 and awarded judgment for the employee ([2010] EWHC 648 (Ch)). The Court of Appeal allowed parts of the employer’s appeal and held termination had occurred on 18 December 2007 ([2011] EWCA Civ 307). The matter came to the Supreme Court on two primary contract-law issues and two issues of contractual construction.

(i) Nature of claim/relief sought. The appellant sought contractual termination payment and damages for breach of contract (wrongful dismissal and breach of a tax-efficiency obligation). The Bank sought a declaration that termination occurred earlier and that the contractual scheme precluded the employee from pursuing damages once he accepted the termination payment/termination agreement.

(ii) Issues framed by the court. The court considered four issues: (1) whether repudiation by an employer operates automatically to terminate an employment contract or whether the innocent party must elect to accept the repudiation; (2) when the Bank validly exercised its PILON right under the Handbook and so when the employment terminated; (3) whether the Handbook’s PILON provision conflicted with the Contract’s notice provision; and (4) whether paragraph 5.16 and Schedules 1 and 2 precluded claims for damages in return for the termination payment.

(iii) Reasoning and disposition. The majority preferred the elective theory: an employer’s repudiation does not of itself end the contract; the innocent party may affirm the contract where performance or other collateral rights justify doing so. The court implied that an employee is entitled to clear and unambiguous notification when an employer relies on a PILON clause; payment into a bank account was held insufficient absent clear notice so the valid exercise occurred when the January 4 letter was deemed received on 6 January 2008. On construction of paragraph 5.16 and associated schedules the court found ambiguity in the drafting and applied contra proferentem, concluding the employee could pursue damages without forfeiting the termination payment. The Supreme Court allowed the appeal, dismissed the cross-appeal and restored the order of the Deputy High Court Judge.

Wider context. The decision confirms the general contractual rule (with the acknowledged qualification concerning co-operative performance) applies to employment contracts and clarifies requirements for invoking PILON clauses and for construing broad waiver/settlement clauses.

Appeal allowed; the court adopted the elective theory that repudiation does not of itself terminate an employment contract, held that the Bank validly exercised its PILON right only when it gave clear written notification (deemed received 6 January 2008), and construed paragraph 5.16 and Schedules 1 and 2 contra proferentem so that the employee could pursue damages while remaining entitled to the termination payment.

First instance: Deputy High Court Judge found termination on 6 January 2008 and gave judgment for the employee ([2010] EWHC 648 (Ch), [2010] IRLR 950). Court of Appeal: allowed some grounds of the employer's appeal and held termination on 18 December 2007 ([2011] EWCA Civ 307, [2011] IRLR 482). Appeal to the Supreme Court ([2012] UKSC 63): appeal allowed and Court of Appeal order reversed.