How does Santa know when he’s been fired...?Add To My Clippings Alt Text

By Tarun Tawakley

...when he gets the sack, of course!

According to the Supreme Court (which doesn’t tend to use bad Christmas cracker jokes), under contract law the correct answer to this question is actually (a) when he accepts his employer’s breach of contract, or (b) when his employer actually tells him that it is terminating his employment in accordance with the contract.

In Societe Generale, London Branch v Geys the Supreme Court had to consider two important issues about wrongful dismissal, which have significant implications for employers who want to dismiss an employee without notice.

The first issue was whether an employee has to accept an employer’s wrongful termination of employment before it takes effect. Societe Generale had told Mr Geys that he was dismissed immediately without notice on 29 November 2007. However, Mr Geys did not accept the dismissal and wanted to keep the contract alive. The termination date made a big difference to the amount of the payment that Mr Geys was entitled to under his contract.

The second issue was when a termination by way of a payment in lieu of notice took effect. Societe Generale made a payment in lieu of notice into Mr Geys’ bank account in accordance with the contract on 18 December 2007. However, Mr Geys did not find out about this until he received notification from his employer in January 2008.  The Court of Appeal had held that termination took effect on the date when the payment was made into Mr Geys’ bank account – even though he was not aware of this at the time. 

The Supreme Court decided:

  • An employee does need to accept a breach of contract before that contract will come to an end.  In Mr Geys’ case, this meant that the attempt to terminate his contract wrongfully on 29 November was not effective, because he did not accept the termination. In essence, the Supreme Court was saying that employment contracts are the same as any other contract – after a breach, the wronged party can choose to keep the contract alive or bring it to an end. This principle applies to both wrongful dismissals and resignations.
  • To terminate employment under a contract, the employee must be given notice of this in clear and unambiguous terms. Just paying money into the employee’s bank account was not enough.  This meant that Mr Geys’ dismissal was not effective until he had been notified by his employer in clear terms that (1) the payment in lieu of notice had been made, and (2) this was done under the employer’s contractual right to terminate his employment by making such a payment. Lady Hale commented that an employee “should not be required to check his bank account regularly in order to discover whether he is still employed”.

There are various practical implications of this decision for employers:

  • It seems that an attempt by an employer to implement an “immediate” termination in breach of contract will not work if the employee does not accept it. This makes it particularly important for employers to have a payment in lieu of notice clause, allowing for immediate termination in return for a notice payment.
  • The advantage for employers is that they can also refuse to accept an employee’s resignation in breach of contract. This means that employers can attempt to hold employees to their notice periods, and seek injunctions to enforce this if necessary.
  • Employers who wish to terminate immediately under the contract by way of a payment in lieu of notice must ensure that the employee is actually told about this, rather than just making the payment.

Unfortunately, although this decision has clarified the position in relation to contractual notice, there remains a confusing difference between the law on wrongful dismissal and unfair dismissal:

  • Under unfair dismissal law, there is no need for the employee to “accept” the dismissal – just telling the employee they are dismissed is enough. This seems to mean that an employee can have been unfairly dismissed, but their contract of employment can still exists for the purposes of contract law if a dismissal in breach of contract has not been accepted.
  • What happens if an employee simply avoids the employer’s letters and calls in order to avoid being notified that they have been dismissed? This has been dealt with in unfair dismissal law by using the alternative test of when the employee had a reasonable opportunity to find out about the dismissal.  However, the Supreme Court simply says that under contract law the employee must actually be notified. This raises the possibility of different termination dates for wrongful and unfair dismissal claims where an employee has deliberately avoided the employer’s communications.

Leaving poor Santa a bit confused about when to submit his claims....


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October 2016