In light of the Supreme Court's decision in Geys v Societe Generale, we're advising employers to check (and where appropriate to amend) the wording of their pay in lieu of notice ("PILON") clauses in contracts of employment.

Mr Geys' pay in lieu of notice clause in his contract stated that his employer "reserved the right to terminate your employment at any time with immediate effect by making a payment to you in lieu of notice". On 27 November 2007 Mr Geys was verbally notified that his employment was being terminated with immediate effect. He was given a letter confirming this.

On 18 December 2007 his employer paid his PILON into his bank account without notifying him (although Mr Geys assumed that the money was his PILON). On 4 January 2008 his employer wrote to Mr Geys to confirm that the PILON had been paid in December. Mr Geys disputed the precise date that his employment terminated - if it terminated in 2008, rather than 2007, he would be entitled to a further £4.5 million as a termination payment.

The Supreme Court held that the PILON clause was only properly exercised when (i) the PILON was actually made and (ii) Mr Geys had received notification from the employer, in "clear and unambiguous terms" of the PILON payment, in light of the wording of the clause in Mr Geys' contract. This meant that Mr Geys' contract wasn't properly terminated until 6 January 2008, when he was deemed to have received the letter of 4 January from his employer. He was therefore entitled to the further £4.5 million in compensation.

Key take-aways:

  • You should review the wording of the PILON clause in your contract of employment and make sure you understand the precise steps which are required in order to bring the contract to an end effectively for your existing staff.
  • If your PILON clause in your standard contract of employment allows you to terminate "by making a payment in lieu" (i.e. it is the making of the payment which brings the contract to an end), we suggest that this is amended going forwards so that you can terminate with immediate effect by giving written notice that a PILON is to be made within a specified period. You should then issue the employee with a letter on the termination date confirming this.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.