9 Aug 2022
19 Feb 2021
Garden leave is a popular protectionist measure used by companies after an employee departs from their role. Garden leave refers to the practice of those companies instructing their employees to not report to work (despite their employment period being over) or to any new employer during the notice period. Whilst garden leave is a relatively common tactic used at large organisations, many start-ups and SME owners know little about it. This blog will provide an overview of how start-ups and SMEs can implement garden leave for their departing employees, as well as more information on the benefits of garden leave and the conditions which need to be met.
Garden leave refers to the practice where, after an employee departs from their position through resignation or termination of employment, the employee is asked not to report to work but receives full pay.
Garden leave is used when employers want the employee to stop performing their duties immediately, but also want to restrict them from taking up another job with a competitor company.
During the period of garden leave, the employee does not need to report to work or fulfil their work duties. The employee receives full remuneration for this period. However, they may not take up employment with anyone else and cannot start up their own competing business.
During the period of garden leave, employees tend to pursue travel or pursue hobbies – such as gardening – hence the name ‘gardening leave’ or 'garden leave'.
So why should employers grant employees a period of garden leave, given that they carry the additional burden of having to continue paying the employee’s salary?
Often, these costs do not take away from the benefits of garden leave and its value for employers. Garden leave might be beneficial to employers for many reasons, including the following:
During garden leave, employees can consolidate relations with colleagues to ensure they do not get poached by the employee on garden leave when that employee starts their next job. Similarly, employers can consolidate relations with customers, to ensure they retain their business and are not taken by the employee on garden leave.
As stated, during garden leave, an employee is not to report to work. This allows employers to ensure that the employee does not have access to any new sensitive, confidential, and/or proprietary information produced by the company during the garden leave period.
Furthermore, during garden leave, the employment agreement continues to take effect. The employee, therefore, owes the same duties to the employer as they did during regular employment. One of the most important ones is to maintain confidentiality. The enforcement of this duty ensures that sensitive, confidential, and proprietary information is not disclosed by the employee during the period of garden leave.
Ultimately, the employer’s intention in granting garden leave is to ensure that the employee is kept out of the job market for long enough such that any information they obtained during their employment is outdated. This ensures that competing businesses do not obtain an unfair competitive advantage.
During the garden leave period, an employee is restricted from joining a competitor or starting their own business to compete with their employer.
The procedure to determine whether an employer can place an employee on garden leave depends on whether the employer has placed a garden leave clause in the employment agreement with the employee.
Let’s consider them each in turn:
The easiest way for an employer to implement garden leave, concerning a specific employee, is by relying on an express contractual provision within the employment contract with the employee in question. In this case, regardless of whether an employee has a right to work or not (see below), an employer can subject the employee to garden leave.
An example garden leave clause is as follows:
2.1 the Following service of notice to terminate the Appointment by either party or if you purport to terminate the Appointment in breach of contract, we may by written notice place you on Garden Leave for the whole or part of the remainder of the Appointment.
2.2 During any period of Garden Leave:
(a) we shall be under no obligation to provide any work to you;
(b) we may require you to carry out alternative duties or to only perform such specific duties as are expressly assigned to you, at such location (including your home) as we may decide;
(c) you shall continue to receive your basic salary and all contractual benefits in the usual way and subject to the terms of any benefit arrangement.
(d) you shall remain an employee of ours and bound by the terms of this agreement (including any implied duties of good faith and fidelity);
(e) you shall ensure that the Chief Executive Officer knows where you will be and how you can be contacted during each working day (except during any periods taken as a holiday in the usual way);
(f) we may exclude you from our premises; and
(g) we may require you not to contact or deal with (or attempt to contact or deal with) any officers, employees, consultants, clients, customers, suppliers, agents, distributors, shareholders, advisers, or other business contacts of ours.
If an employer puts an employee on garden leave without an express contractual right, the court will have to consider whether the employee has a contractual right to work. If the employee does have a right to work, and the employer put the employee on garden leave anyway, this will amount to a breach of contract.
Generally, case law suggests that there exists no ‘general’ right to work. A right to work may exist for certain specialised jobs, however, especially those for which working regularly is essential for an employee to maintain the necessary skills for that job.
In determining whether a right to work exists, the courts will consider many factors including the following:
Often, where an employee’s remuneration is heavily dependent upon their work, such as where commission or bonus arrangements make up the bulk of their remuneration, a right to work is readily implied.
An employer need not provide any work to an employee, where and if that employee demonstrates evident disinclination to work. In such a case, no right to work will be implied.
If an employee breaches their duty of good faith, which they owe to their employer, the employer is released from any obligation to provide work to the employee. In such a case, no right to work will be implied.
Ultimately, however, whether a right to work is implied or not depends on the case.
If an employee is found to have an implied right to work, an employee should not immediately put that employee on garden leave. If they do, an employee may be able to claim there has been a repudiatory breach, which they have accepted.
This, in practical terms, would allow that employee to start working for any competing business immediately. Any restrictive covenant intended to protect the company, which was included in the employment contract – such as a covenant not to compete, a non-solicitation clause, etc – will not be able to be relied upon by the employer. They will be void!
Employers should be well advised to avoid this risk by including a garden leave clause in the employment agreements of relevant employees.
So, how does garden leave impact the relationship between employer and employee?
During garden leave, the employment contract between the employer and employee continues to exist. Both the employer and employee remain bound by the terms of the employment agreement during the period of garden leave.
This means employees are still bound and subject to any restrictive covenants included in the employment contract – such as covenants not to compete, non-disclosure agreements, non-solicitation agreements, etc. It also means that duties, which are implied in the employment relationship continue to bind the employee – including that maintaining confidentiality.
For the employer, in practical terms, this means they are still bound to provide all remuneration as normal to the employee throughout the garden leave. It also means that all benefits provided during the normal period of employment – such as pensions, medical insurance, etc – must be provided during the garden leave.
To enforce a garden leave clause, an employer must obtain an injunction. An injunction is an order from a court demanding that an employee comply with the terms of the employment agreements or refrain from joining a competing business.
An injunction is an equitable remedy – this means that it is a remedy granted by the courts at their discretion.
A major consideration, for the courts, is whether an injunction is the only effective remedy to counter the harm to the employer, or whether damages would suffice.
Furthermore, an employer must show they have a legitimate interest in obtaining the injunction.
Legitimate interests include protecting trade secrets, confidential information, relationships with customers, and maintaining a stable workforce.
Employers should ensure that any garden leave period is only for the length necessary for the protection of the employer. If a garden leave period is made longer than needed, the employer will put himself at the risk of the garden leave order being deemed unenforceable by the courts.
Generally, the longer the period of garden period the employer proposes, the less likely a court is to enforce it in full. For instance, it is extremely rare for a garden leave period of over a year to be enforced by the courts.
If a garden leave period is deemed longer than necessary, it seems that the courts might alter it to only enforce it only for the period necessary to protect the employer.
Provisions for garden leave operate alongside other restrictive covenants, which also intend to protect an employer’s business.
Examples of these restrictive covenants include:
This is a clause in an employment contract that prevents an employee from seeking employment in the same industry or field after the termination of employment with the employer.
This is a clause in an employment contract whereby an employee agrees not to solicit any of an employer’s clients after the termination of employment with that employer.
DocPro offers numerous non-compete and non-solicitation agreements for employers and employees to use. We offer numerous variations of this agreement differing based on the party – the employer or employee – they are drafted in favour of.
You can find a brief description of each of our agreements and links to them here:
Non-Compete and Non-Solicitation Agreement for Employment. This agreement is drafted neutrally in favour of both the employer and employee. You can find it here: https://docpro.com/doc1341/non-compete-and-non-solicitation-agreement-for-employment-one-way-unilateral-neutral
Non-compete and Non-solicitation agreement for employment. This agreement is drafted in favour of the employer. You can find it here: https://docpro.com/doc1342/non-compete-and-non-solicitation-agreement-for-employment-one-way-unilateral-employer
Non-compete and Non-Solicitation Agreement for Employment. This agreement is drafted in favour of the employee. You can find it here: https://docpro.com/doc1344/non-compete-and-non-solicitation-agreement-for-employment-one-way-unilateral-employee-1
This is a clause in an employment contract whereby an employee agrees not to disclose any confidential information of the employer after termination of employment with that employer.
DocPro offers a unilateral non-disclosure agreement template, reviewed by experienced lawyers. It includes all the terms explained in this article and more. Use our NDA and make sure your confidential information is protected.
You can download it NOW here: https://docpro.com/doc1666/nda-confidentiality-agreement-for-employment-one-way-unilateral-employer
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