An employment contract can be terminated with immediate effect by a clause allowing the employer to make a payment in lieu of notice (PILON). In Societe Generale London Branch v Geys, the Court of Appeal said that a contract can (when clearly drafted) be terminated by a PILON even if the employee was not aware that a payment had been made into his account.

Basic facts

Mr Geys was appointed managing director of the bank’s European Fixed Income Sales in February 2005, but was summarily dismissed in November 2007.

Clause 13 of his contract stated that his employment could be terminated on the expiry of three months’ written notice; clause 17 stated that the contract should be read in conjunction with the company handbook. Paragraph 8.3 of the handbook stated that the bank could terminate his employment with immediate effect by making a PILON.

After some correspondence between Mr Geys’ and the bank’s solicitors, the bank paid almost £32,000 into his account on 18 December but did not tell him. On 4 January it wrote to Mr Geys telling him that it had given him notice to terminate his contract with effect from 29 November and that payment in lieu had been made on 18 December.

Based on a termination date of 29 November, the bank calculated it owed Mr Geys just under €8 million. Mr Geys argued that his contract was effective for a further three months and consequently he was owed 12.5 million euros.

High Court decision

The High Court said that as there was no inconsistency between paragraph 8.3 of the staff handbook and clause 13 of the contract and the bank was therefore entitled to make a PILON to Mr Geys.

However, it rejected the bank’s argument that all it needed to do was to pay the money into his account, because it “would be surprising if an employment contract could be terminated by an act by the employer of which the employee was unaware”.

Although it was possible for a contract to be terminated by a PILON “clear words would be required before such an intention could be attributed to the parties”.

Court of Appeal decision

The Court of Appeal agreed with the High Court judge that there was no real “conflict” between clause 13 and paragraph 8.3, which gave the bank “a lawful alternative of terminating the contract by a PILON”.

However, it said that the judge was wrong to decide that the contract had terminated when Mr Geys received the letter from the bank in January. Instead, it had ended when the bank made the PILON payment on 18 December, even though he was not aware of it for a couple of weeks.

This was because the express term in paragraph 8.3 was already “perfectly clear”, giving the bank the right to terminate his employment at any time “with immediate effect” by making a payment in lieu of notice.

Although this meant that Mr Geys did not receive notification of termination, the Court of Appeal said that employees were only entitled to notice for the purposes of the 1996 Employment Rights Act and not at common law.

The effective date of termination is a statutory construct, it said, which will not necessarily coincide with the termination of the employment contract for common law purposes, as had happened here.