18th August 2017
Put simply garden leave, also known as gardening leave, is a measure used by employers to keep employees who have tendered their resignation out of the competitive market place during their notice period. The employee is generally not required or indeed permitted to work and is required to stay at home hence the term 'garden leave'.
Garden leave is generally reserved for more senior employees who may have technological knowledge, strategic market and pricing information or valuable customer contacts. The aim of garden leave is to keep the employee out of the market place long enough for any information they have to go out of date, or to enable the employee’s successor to establish themselves, particularly with customers, so as to protect goodwill. Garden leave is completely different from a paid suspension which is used to keep the employee out of the work place whilst disciplinary proceedings are undertaken. Garden leave is often used in conjunction with post termination restrictive covenants which prevent the employee from, amongst other things, poaching or soliciting the ex-employer’s clients and business contacts.
Can the Employer place the Employee on Garden Leave?
Employers can place employees on gardening leave where there is an express term in the Employment Contract allowing them to withdraw the employee’s duties and exclude them from the premises. Generally the employer will be able to place the employee on garden leave for the whole of their notice period. But, where an employee has an exceptionally long notice period, say more than six months, the employer may be unable to enforce garden leave for the full period. A Court is only likely to enforce garden leave for as long as it is necessary to protect the legitimate interests of the employer.
During the garden leave period the employer must continue to pay the employee his salary and other contractual benefits. At first sight some might wonder why an employee would object to being placed on garden leave when they can enjoy their full salary without having to do any work. However garden leave that is either excessive in length or unexpected because there is no express term in the Employment Contract allowing it can cause problems for the employee. For example, the employee’s new employer may be impatient having to wait so long for their new recruit to start work or the employee may not wish to remain out of the market place for any period of time.
No Express Garden Leave Clause and the Right to Work
When an employer places an employee on garden leave without an express entitlement to do so, a Court will consider whether the employee has a contractual right to work. It was generally thought that there was no implied contractual right to work but simply a right to be paid. If this interpretation is correct an employer would be under no obligation to provide an employee with work meaning that placing the employee on garden leave would not be a breach of Contract, even without a garden leave clause. However, more recently Courts have seemed increasingly willing to find that employees have a right to work. In William Hill Organisation Limited v Tucker the Court of Appeal held that the Senior Dealer had an implied contractual right to work. This was because the skills necessary to perform the role needed regular use and frequent and continued experience of the spread betting market was necessary to the enhancement and preservation of the skills of those who work within it.
Another factor affecting the enforceability of the garden leave clause is whether any bonus will continue to accrue during garden leave. If it does not and sending the employee on garden leave may be to his financial detriment this may affect the enforceability of the garden leave clause.
The Implied Duty of Mutual Trust and Confidence
Some contracts expressly provide that the implied duty of mutual trust and confidence shall continue during any period of garden leave. Even if not expressly provided for, this duty may still exist. In Imam-Sadeque v Blue Bay Asset Management (Services) Limited the High Court rejected the notion that an employee’s duty of good faith lessened when he was placed on garden leave, at least to the extent that the duty imposed obligations to refrain from acting in a particular way. Such negative obligations remain part of the employee’s duty for as long as they are employed. The court held that the purpose of garden leave is to secure an employee’s loyalty to their current employer and to delay the transfer of that loyalty to the new employer until the expiry of the notice period.
Consequently there is no reason why the duty of good faith should be relaxed during the garden leave period during which the employee has the benefit of being paid in full without having to carry out the positive work obligations. The employer is paying for the continued right to insist on the employee performing his negative obligations.
Relationship with Restrictive Covenants
It is common practice for employers to offset any time the employee spends on garden leave against the length of time they would be expected to abide by their restrictive covenants after their employment ends. For example, an employee may be placed on garden leave during their three month notice period and then their restrictive covenants which prohibited them from approaching past clients for six months after they had left the employer’s business would be reduced by the three months they had already spent on garden leave.
It is important to note, however, that the Courts have held that there is no principle of ‘automatic set off’ but that the existence of a garden leave clause might be a factor to be taken into account in determining the validity of a restrictive covenant.
If you are an employer wishing to enforce either garden leave or restrictive covenants, or an employee having these imposed upon you, contact us for specialist advice on whether these clauses would be regarded as enforceable by the Courts.
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