Garden leave

Garden leave legal advice

Garden leave is the legal term given to clauses in an employment contract giving an employer the right to require the employee to work his or her notice period at home.

In fact, quite often the employee does not work at all but is required to be available.

The reason for using gardening leave clauses is where the employer wants to distance the employee from customers and colleagues to minimise the risk of poaching of customers or staff when the employee actually leaves. These clauses are generally used in conjunction with restrictive covenants.

Do you need a garden leave clause?

Garden leave clauses are typically found in a senior employees or directors employment contract. The clause entitles the employer, after notice has been given by either party, to require:

• The employee to stay at home; and
• Not work or contact colleagues, clients and suppliers.
• Removing the employee's ability to access confidential databases, information and business critical data.

Garden leave clauses are not just important for contracts for senior employees. Where any employee has valuable and transferable client relationships, employers can use garden leave to protect their relationships with clients before the employee leaves.. Many employees will also have access to important company know how and data. Garden leave can significantly mitigate the risk of data theft or misuse in the lead up to an employee leaving,

A comprehensive garden leave provision can be one of the most valuable tools in the employer’s toolkit when it comes to terminating employment.

Advantages of a garden leave clause

The advantages of garden leave are that:

• the employee continues to owe all his contractual duties, including implied terms such as the duty of trust and confidence, to the employer;
• it can allow for a useful handover period;
• a paid period of non-competition may be more palatable to an employee than an unpaid period; and
• garden leave clauses are less likely to be challenged in terms of duration than restrictive covenants.

Disadvantages of a garden leave clause

The key disadvantage is that the employer needs to continue to provide all contractual pay and benefits during the period of garden leave. The employer can expressly exclude the obligation to provide benefits in the employment contract.

The other disadvantage is that for garden leave clauses to be most effective they generally require a minimum 3 month notice period and often longer to be included in the employment contract. Employers generally do not want to pay expensive employees to sit at home and do nothing while being paid.

No garden leave clause in the employment contract?

The employee has a right to work. In the absence of the garden leave clause, an employer cannot lawfully place an employee on garden leave. Isolating an employee or failing to provide them with work, without the express power, may be regarded as a breach of contract. This entitles the employee to resign and claim constructive dismissal on account of the employer’s breach of contract.

Why are garden leave clauses are often combined with restrictive covenants?

Employees often acquire confidential information such as trade secrets and knowledge of sensitive business interests. These include the identity of key clients and their requirements, pricing and profitability, supplier details, and future strategic and marketing information. It can be tempting for employees to use information acquired through their employment after their employment has terminated, either in business for themselves or to further the interests of their new employer who may be a competitor.

So, the protection provided by putting an employee on garden leave may need to be combined with restrictive covenants applying post departure.

Also, the lack of comprehensive protection in employment contracts can make it more difficult to sell a business especially with technology companies.

What if the employee breaches garden leave?

Where an employees refuses to comply, garden leave clauses can be enforced with a court injunction, often preceded by a cease and desist letter. This is expensive. The remedy is also discretionary and therefore there is no certainty that the court will grant the injunction. There are alternatives to avoid litigation an employer can consider such as undertakings.

Garden leave clauses will be enforceable under the employment contract if they go no further than is reasonably necessary to protect the employer’s legitimate interest. The duration of garden leave tends to be for the period of notice. For senior employees and company directors notice periods can be up to 12 months depending upon the facts.

The reasonableness of a garden leave clause will be judged on at the time of enforcement, i.e. when the employee is leaving. The court can then decide the extent to which garden leave can be enforced. So in the example above, the court could have decided on an injunction to enforce garden leave for 6 months.

Keep your employment contracts under review

Employers should have appropriate garden leave and restrictive covenant clauses in the employment contract for key staff and regularly review these clauses. Reviews should especially take place when the employee moves to another role or is promoted.