I realise most of us regrettably do not operate in the area of very large bonuses but the lessons here are equally applicable when considering terminating an employee even if you have followed the correct processes.
A recent decision by the Supreme Court has provided employers with a timely reminder to ensure they follow the correct procedures when terminating an employee’s contract.
The case, Raphael Geys against Société Générale (London Branch) concerned an employee who was employed as managing director of a division of the Bank. His contract contained performance related bonuses, and termination bonuses based on previous years’ bonuses.
The timeline of the case:
December 18 2007 : The employer sought to exercise a PILON (payment in lieu of notice) clause by paying Geys’ three months’ notice pay into his bank account. They did not give him formal notice in any other way.
January 4 2008 : The employer wrote to Geys telling him they had made the payment
January 6 2008 : Geys received the letter.
The employer argued the contract ended on December 18th,(when the PILON payment was made) whilst the employee said it was January 6th, (when he knew about the payment). The date was significant as if it was the earlier date, the employee would not receive a 2 million euro termination bonus.
The Court agreed with the employee and said that in the absence of being given formal notice, it was impossible for him to know that a PILON had been made unless he checked his bank account every day to see whether he had been dismissed.
The Court also noted that without notice, the employee might be unaware that employment related health and life insurance had been terminated, which could have very serious consequences for them and their family.
They key lesson for employers is as always to make sure that their procedures are correct and just as importantly that they and their management team follow them to the letter.
If an employee’s contract is being terminated they should be told expressly and unambiguously why, how and when his/her contract is being terminated.
A PILON clause will only be effective if the employee is explicitly notified that the clause has been exercised and informed when the payment has been or is to be made.
If you are considering terminating the contract of senior staff, it will be worth a quick call to me on 02036407748 or contact me at email@example.com to make sure that your proposed actions are correct. The consequences of not doing so, as the employer in this case discovered, could be very expensive.