"Garden leave" is a concept present in many foreign legal systems and encompasses the idea of an employee away from work and staying home during the notice period arising from his/her employment agreement termination.
This practice is often destined to prevent employees from gathering confidential information, especially when they leave a job to work for a competitor.
In this sense, it is common to have foreign companies seeking advisory on the possibility of keeping employees on garden leave, alleging that it would be a beneficial situation to employees.
Notwithstanding this initial impression that the garden leave is beneficial to employees, this practice is not admitted in Brazil. Before explaining the reason, we shall bring a brief explanation of how prior notice works in Brazil.
The Brazilian Labor Legislation mandates a 30 to 90 day notice period for the employer to inform employee of his/her termination where the dismissal is without just cause.
Employer may chose whether the employee will work during this period or not. Said choice will impact the term for payment of severance amounts:
- If an employer chooses to keep the employee working, severance must be paid on the first working day after the end of the prior notice period.
- If an employer opts to excuse the employee from work during the prior notice period and pay, in turn, an indemnity for such period, severance must be paid within ten days as of the notice of dismissal.
Considering that the prior notice period cannot be less than 30 days and that an indemnity may be paid instead of having the employee working throughout the period, the rationale for not accepting garden leave in Brazil is that it could be considered as a maneuver by employers to delay severance payment, because once a company has chosen not to have the employee working during the notice period, the severance should be paid in ten days from the notice of dismissal and not at the end of the prior notice period, as it would be done in a garden leave situation.
The understanding above - which is applied by the labor courts and also by Labor Ministry's inspectors - is in line with the principles governing labor relationships in Brazil if we agree that the garden leave does not bring any benefit to the dismissed employee, who would receive the severance amounts later than what is provided by law.
It is also in line with the principles of Brazilian labor law, under which employees can only negotiate employment conditions that are not contrary to the existing regulations and which do not generate losses to employees.
Another argument used by the labor courts to refuse the garden leave concept and consider any practice in this sense null is that such practice prevents an employee from working for another company, solely based on a decision taken by the employer, thus trampling the employees' right to work, which is protected by the Brazilian Federal Constitution.
Thus, when garden leave is applied in Brazil, it is supposed that the employee was terminated at the time he was told to stay home, that he/she has been excused from working throughout prior notice and is entitled to receive his/her severance amounts within 10 days; if such payment term is not observed, the employer would have to pay a penalty to employee equivalent to the employees' last month salary, in addition to mandatory severance provided in law.
Further, the employer would also be exposed to have a judicial request for the termination of the employee's agreement due to the employer's fault - with the payment of severance amounts due in this hypothesis-, as well as have to indemnify the employee for possible damages, such as in the event the employee loses a job offer from a company he intended to work.
In any case, even if the employee asked or agreed with it, choosing garden leave is a very risky situation to the company.
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.