Forfeiture, penalty and repudiation: terminating the employment of highly paid employees | White & Case LLP International Law Firm, Global Law Practice
Forfeiture, penalty and repudiation: terminating the employment of highly paid employees

Forfeiture, penalty and repudiation: terminating the employment of highly paid employees

Two recent cases in the English courts, Imam-Sadeque v BlueBay Asset Management (Services) Ltd and Geys v Société Générale, have focused on important issues for employers of senior and highly remunerated employees, particularly those in the financial services sector where payments under incentive plans are often linked to active service and used both to retain talent and to deter key individuals from leaving to join competitors.

In the first case, Mr Imam-Sadeque was found to have breached the implied and express terms of his contract of employment when leaving to join a new start-up called Goldbridge, which was preparing to compete with BlueBay. As a consequence, he lost the contingent right under a settlement agreement he had entered into with BlueBay to exercise incentive awards worth £1.7 million. Employers can take some comfort from this decision that the Courts will take into account the seniority and importance of an employee when determining the extent to which his implied duty of fidelity will require him to disclose competitive threats to his employer, irrespective of whether he or fellow employees are involved in that competitive threat. However, it also serves as a warning to employers seeking to recruit employees from competitors that matters discussed in interview (even under a non-disclosure agreement) may become information which that employee should disclose to his current employer in compliance with his duty of fidelity. Other lessons to learn are the importance of including express duties in the contract of employment to act in the best interests of the employer and not to engage in any competitive activity, and the usefulness of conditions precedent in a settlement agreement which have to be satisfied before the payment of any severance sum or other benefit is made. This case also provides a good reminder to employers to ensure that the terms of any contracts, bonus or incentive plans relating to clawback and/or forfeiture are commercially justifiable and cannot be regarded as so penal as to be unenforceable.

In the second case, the Bank failed to properly notify Mr Geys of the termination of his employment. Mr Geys refused to accept the Banks' repudiatory breach of contract and remained employed until the Bank provided appropriate notice of termination on 6 January 2008, by which time he had become entitled to a termination payment of more than €12.5 million. This case is particularly relevant for employers whose standard contracts of employment do not contain payment in lieu of notice provisions, particularly in respect of highly paid senior employees with lengthy notice periods, and those employers should be considering the need for amendments to such contracts to give the employer the right to terminate immediately even in the absence of cause. It does, however, also remind employers of their right to affirm the contract of employment when an employee seeks to leave on no or short notice, often to join a competitor. Finally, it underlines the importance of notice of termination being given in clear and unambiguous terms, particularly where the specific termination date may have a particular relevance for the employee's right to obtain or retain certain payments or other incentives.

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