Geys v Société Générale [2012] UKSC 63

Facts

• Mr. Geys was employed by Société Générale under a contract allowing termination via three months’ written notice or payment in lieu.
• On 29 November 2007, Société Générale summarily dismissed Mr. Geys without immediately paying the sum in lieu.
• The relevant payment was made on 18 December 2007, but Mr. Geys was not notified of this payment until 4 January 2008.
• The precise date of contract termination affected the calculation of Mr. Geys' severance entitlement, with a later termination date increasing the payment owed.
• Mr. Geys claimed his contract terminated on 6 January 2008, after he received notification of payment in lieu, entitling him to a higher severance.
• The dispute centered on when the employment contract was terminated following the repudiatory breach by Société Générale.

Issues

1. Whether a contract of employment terminates automatically upon a repudiatory breach (automatic theory) or only upon the innocent party electing to accept the breach (elective theory).
2. How the timing of termination affects the employee’s entitlement to severance payment in cases of summary dismissal and payment in lieu of notice.
3. Whether there is a distinction between dismissals/resignations and other contract breaches in the application of these theories.

Decision

• By a majority of 5 to 1, the Supreme Court found in favour of Mr. Geys, holding that the contract did not terminate automatically upon repudiatory breach.
• The Court held termination occurred on 6 January 2008, when Mr. Geys was deemed to have received notice of payment in lieu.
• The majority reasoned that automatic termination would unfairly allow the contract breaker to benefit from their breach and potentially manipulate the timing of employee severance benefits.
• The Court endorsed the elective theory, concluding the innocent party must accept the repudiation for termination to occur, even in employment contracts.
• A dissenting opinion by Lord Sumption favoured the automatic theory, especially concerning core obligations in employment contracts, but this view was not adopted.
• The Court rejected arguments that contracts lacking enforceable duties should be considered as automatically terminated following a repudiatory breach.

Legal Principles

• A contract is not automatically terminated upon a repudiatory breach; the innocent party has the right to elect whether to accept the breach.
• The elective theory gives the innocent party control over the timing of contract termination following breach, thus protecting their interests.
• Summary dismissal and payment in lieu of notice do not of themselves determine the date of termination unless notice is properly communicated and accepted.
• There is no justified distinction between types of employment contract breaches (such as dismissals or resignations) regarding the application of the elective theory.

Conclusion

The Supreme Court in Geys v Société Générale established that, even in employment contexts, a repudiatory breach does not terminate a contract unless and until the innocent party elects to accept the breach, affirming the principle of contractual autonomy and requiring explicit acceptance for effective termination.