Putting an ex-employee on garden leave has become an increasingly common practice over the last decade. This is largely because restrictive covenants are being seen as a less effective measure of protection for employers. Although potentially useful at any time during the employment, garden leave tends to come into operation once either party has given notice to terminate. The employee is required to stay out of the office, and at home, for a period of time. This keeps the employee away from the business of the company (and so his knowledge about the company becomes increasingly out of date) while at the same time keeping him away from any competition and out of the employment market. In effect, many employers have used garden leave to protect confidential information by keeping valuable employees out of the market place.
Garden leave clauses are normally (but not necessarily) reserved for more senior staff. If an employer is going to include such a clause it should also include an obligation on the part of the employee to give the employer exclusive services for the duration of the employment relationship. It should also be combined with express confidentiality obligations.
As a garden leave clause is usually designed to protect confidential information it is unlikely that the courts will grant an injunction to enforce this sort of a clause unless the 'soon to be ex-employee' is in possession of such information and intends to compete in some way with the current employer (i.e. there must be some positive detriment to the employer in the employee's future plans). It is unlikely that an injunction would be granted to prevent an employee from working for an entirely unconnected business.
The garden leave injunction must be sought (or at least threatened) quickly, usually before the employee has had time to start his new job. It is, in many respects, more powerful than trying to enforce a restrictive covenant which many employees now refuse to sign and which is more likely to be declared unlawful as a restraint of trade by courts and tribunals.
This does not mean that a notice period of any length would be enforced under any circumstances. The employer must normally have a clause in the contract to the effect that during the period of notice it has no obligation to provide any work. Otherwise the court may refuse to grant an injunction at all. There are several exceptions where courts have implied a term that employees must be provided with work, particularly where employees skills may 'atrophy' if not exercised. These employees might claim constructive dismissal if left with nothing to do. Further, some notice periods may be too long to be enforced and the employer must show that the action of the employee will cause it loss – that the activity he or she will take up is genuinely competitive with the business of the old employer.
In the case of William Hill Organisation Limited v Tucker the Court of Appeal held that William Hill were under a duty to provide the employee with work which was available and therefore in the absence of a contractual provision permitting them to do so, could not insist that he stayed away from work on 'garden leave' for the duration of his notice period while continuing to receive his full salary. In this case the Court of Appeal also confirmed that the enforceability of garden leave clauses will depend on similar considerations to those applicable to the enforceability of restrictive covenants i.e. that the court should be careful not to grant interlocutory relief to enforce a garden leave clause to any greater extent than would be covered by a justifiable covenant in restraint of trade previously entered into by an employee.
A recent High Court case held that putting an employee on garden leave under an express term in the employment contract has the effect of terminating the employment relationship (but not the contractual relationship) and with it any implied obligation of good faith and fidelity. As a result the court would not use the implied terms of good faith and fidelity as the basis of granting an injunction restraining the employee from working for a competitor.
In the case of Symbian v Christensen there was a six month garden leave arrangement. The judge found that the employer's decision to forbid the employee from working "fundamentally and irretrievably undermines the employment relationship between the parties".
The court refused an injunction on the basis of any implied duty but it was able to rely on an express contractual exclusivity provision that forbade the employee from carrying out any commercial activity other than for the employer during the continuance of the contract.
This decision has been upheld by the Court of Appeal. It is important because it is a departure from the traditional view that an employee remains bound to comply with the obligation of good faith and fidelity during garden leave. Accordingly a bare garden leave clause which is not supported by any other contractual promises will still be effective to require the employee to stay out of the office, but, in practice, the clause will be useless since the employee cannot be stopped from moving to a competitor during the garden leave period.
Tip
To overcome the problems of this case consider:
- including an express provision that:
- lists the components of the implied duty of good faith and fidelity (e.g. the duty not to compete with the employer); and
- states that those duties shall apply throughout the term of the contract notwithstanding garden leave; and
- stating that other contractual obligations of the employee will continue for the term of the contract rather than the continuance of employment.
And finally, another decision has held that holiday leave continues to accrue during garden leave so an employee dissatisfied by being left in the garden could jet off abroad to somewhere exotic – if not facing an injunction that he or she should garden for a little longer!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.