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


Two recent cases in the English courts 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, Imam-Sadeque v BlueBay Asset Management (Services) Ltd, the High Court considered whether Mr Imam-Sadeque had 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. It also considered whether the penalty doctrine applied to render the terms of a settlement agreement between the parties unenforceable insofar as Mr Imam-Sadeque was unable to exercise incentive awards worth £1.7 million upon a breach of that agreement.

In the second case, Geys v Société Générale, London Branch, the Supreme Court had to determine whether a repudiatory breach of the contract of employment by either party brings the contract to an end automatically or whether the contract is only terminated when the other party accepts the repudiation. It also considered the manner in which notification of termination of employment should be given. In doing so, the Court had to identify whether Mr Geys’ employment terminated on 18 December 2007 or on 6 January 2008, the latter date giving rise to an entitlement to a termination payment of more than €12.5 million.

This Insight highlights the key lessons to be learnt by employers from these two cases.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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