The End of the Opportunistic Breach of Contract! The Elective Theory of Repudiatory Breach Prevails: Societe Generale, London Branch v Geys [2012] UKSC 63

Abstract

On the 19th December 2012 the Supreme Court provided an answer to the long-standing question as to the consequences of a wrongfully repudiated contract of employment. Was it for the innocent party to elect to accept the repudiation to bring the contract to an end? Or, was the contract automatically ended upon the wrongful repudiation? Previous authorities had moved between these elective and automatic theories. The elective theory held that a wrongful repudiation only became effective where the innocent party elected to accept the repudiation. Conversely, the automatic theory considered that the contract ended automatically upon the repudiation. Whilst in traditional contract law, the elective theory had been established as effective, this was not decided with authority in contracts of employment. In Geys, the Supreme Court had the opportunity to consider which was the applicable theory in relation to an employer’s use of a payment-in-lieu of notice (PILON) clause. The Court resolved the conflict (4-1 with Lord Sumption dissenting) by holding that the elective theory was preferred in instances of wrongful repudiation of a contract of employment. This judgment has significant implications for employers, but also for employees who wrongfully terminate the contract.