Gardening leave is one of the most effective methods for employers to protect their businesses and the customer and client relationships that make them successful.
Whilst garden leave is a relatively common tactic used at large organisations, many start-ups and SME owners know little about it. It is thereby not surprising that garden leave is not widely used by start-ups and SMEs.
This blog will provide an overview of garden leave for startups and SMEs and will focus on what garden leave is and how it works.
Garden leave refers to a practice, following an employee leaving a position – whether through resignation or termination of employment by the employer – whereby the employee is no longer required to report to work, yet remains on the payroll and receives full pay.
Garden leave is used by employers when they want an employee to stop performing their duties immediately, yet at the same time wants to restrict them from taking up another job with a competitor.
A period of garden leave is thereby imposed. During this period, the employee need not 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.
This period of garden leave is often used by employees to pursue travel or pursue hobbies – such as gardening – hence the name ‘gardening leave’ or 'garden leave'.
Garden leave does have its associated expenses. The employer does, after all, need to continue paying and providing the employee with their salary and other benefits.
Despite these costs, garden leave is still a very valuable tool for employers.
Garden leave is beneficial to employers for many reasons, including the following:
Employers, during garden leave, 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 often 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 often required not to report to work. This allows employers to ensure the employee does not have access to new any new sensitive, confidential and/or proprietary information produced by the company during the garden leave period.
Furthermore, during the period of garden leave, the employment agreement continues to exist. The employee, thereby, owes the same duties to the employer during garden leave, as they did during the normal period of employment, and vice versa. Amongst the duties that the employee will still owe to their employer is the duty to maintain confidentiality. This ensures any sensitive, confidential or proprietary information does not get disclosed by the employee to others during the period of garden leave.
Ultimately, the intention of an employer with garden leave is to ensure that an employee is kept out of the job market for long enough, such that any information in their possession, obtained through their time with the employer, becomes outdated. This will help ensure that competing businesses do not obtain an unfair competitive advantage through the ex-employee.
During the garden leave period, an employee is normally 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 at issue or not.
Let’s consider them each in turn:
The easiest way for an employer to implement garden leave, in relation to a specific employee, is by relying on an express contractual provision within the employment contract with that employee. In such a 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 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 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, a court will consider whether the employee has a contractual right to work. If the employee does have such a right to work, and an employer, nonetheless, puts an employee on garden leave, this will be a breach of contract.
Generally, for most jobs, case law suggests that there will not arise any general right to work. A right to work may arise for certain specialised jobs, however, especially jobs for which working regularly is essential for an employee to maintain particular skills pertaining to that job.
In determining whether such a right to work arises, the courts will consider many factors including the following:
Often, where an employee’s remuneration is heavily dependent upon their work, such as when commissions or bonus arrangements contribute heavily to their remuneration, a right to work will be readily implied.
An employer need not provide any work to an employee, where and if that employee demonstrates evident disinclination to do the 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 heavily depends on the specific facts of each case.
If an employee is found to have an implied right to work, an employee should not 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, will 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, thereby, would be well advised to avoid this risk by simply 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 contract of employment, 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 many duties, which are implied in the employment relationship continue to bind the employee – including the duty to maintain confidentiality.
For the employer, in practical terms, this means they are still bound to provide all remuneration as normal to the employee throughout the period of garden leave. It also means all benefits provided during the normal period of employment – such as pensions, medical insurance etc – must still be provided during the garden leave.
In order 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 in breach of the employment agreement.
An injunction is an equitable remedy – meaning it is a remedy that is granted by a court 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 a length that is necessary for the protection of the employer. If a garden leave period is made longer than necessary for such protection, the employer risks it being deemed unenforceable by courts.
Generally, the longer an employer makes a period of proposed garden leave, the less likely a court is to enforce it in full. For instance, it is extremely rare for a garden leave period of over one year to be enforced by the courts.
If a garden leave period is deemed longer than necessary, it seems that the courts will enforce it only for the period necessary to protect the employer.
Provision for garden leave operates alongside other restrictive covenants, which also intend to protect an employer’s business.
Example 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 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 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
DocPro Legal is a team of legal professionals with a passion for making quality documents and legal contract templates widely available to the public through cutting edge technology. Our lawyers are qualified in numerous common law jurisdictions including the United Kingdom, Australia, New Zealand, India, Singapore and Hong Kong. We have experience in major law firms and international banks with expertise in business, commercial, finance, banking, litigation, family, succession and company laws.
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