Jump to:
- What is garden leave?
- What are the differences between garden leave and post termination restrictive covenants?
- What is the benefit to an employer of using garden leave?
- What are the employer and employee obligations during garden leave?
- Does an employer have to draft a garden leave clause into an employee’s contract of employment?
- Can an employee challenge garden leave?
- How can I enforce garden leave?
- Summary
What is garden leave?
Garden leave is where an employer exercises a discretion, generally drafted into an employee’s contract of employment, to place restrictions on the employee during their notice period, while continuing to pay their salary and usually also provide contractual benefits.
Garden leave is usually used to prevent an employee who will shortly be leaving the business from having access to sensitive data or information that could be damaging if it fell into the hands of a competitor or which would assist the employee setting up their own business in direct competition with their former employer. Garden leave can also be used to stop employees from having contact with colleagues, clients or suppliers, so that they cannot be poached or negatively influenced against the employer.
The restrictions during garden leave usually include preventing the employee from attending the workplace or having contact with customers and other company contacts, including other members of staff. The employer might choose to place the employee on garden leave if they want them to stop performing their regular duties immediately, once they have decided to leave, but will generally still want the employee to remain in contact in case there are any handover enquiries.
What are the differences between garden leave and post termination restrictive covenants?
Yes. There are differences between garden leave and post termination restrictions, as follows:
Garden Leave
There appears to be more likelihood of enforcement of garden leave clauses by courts, as garden leave generally comes with continued salary and benefits paid to the employee during that time.
The contract of employment is still in force during garden leave. This means that the court is not just limited to enforcing the garden leave clause, it can also enforce express contractual provisions or implied duties such as the duty of good faith, trust and confidence and fidelity that every employee has to their employer.
With garden leave cases, it is arguable that preventing competition of an employee is an interest your business requires to protect.
The court has more flexibility with interpretation relating to garden leave and so if part of a clause is unenforceable this can be removed and the rest of the clause can continue to bind on the employee.
It is generally accepted that a short period of garden leave is reasonable to protect legitimate business interests of a company where an employee is likely to exit a business, but a longer period of garden leave would need to be justified and an injunction sought.
Restrictive Covenants
These relate to a set period, stated in an employee’s contract, which immediately follows the employee’s termination of employment. The employer has less control over the employee once he/she has left their employment, as it is probably no longer paying the employee, and so these restrictions can be more difficult to enforce than restrictions during garden leave. Also, as the employment relationship is not ongoing there are no implied duties that the employer can rely upon.
When enforcing post-termination restrictive covenants, restricting competition is not considered a legitimate interest in itself and so it can be more difficult to persuade a court that post termination restrictions are required.
Post-termination restrictions are generally accepted to be either wholly enforceable or wholly unenforceable, the court has little discretion to make changes to make part of a restrictive covenant bind.
As with garden leave, the longer the post- termination restrictions, the more difficult they will be to enforce, as it will be more open to challenge that the restrictions go further than is necessary to protect the legitimate business interests of the company.
There is an interaction between garden leave and restrictive covenants which must be taken into account though. If an employee has been placed on a prolonged period of garden leave while serving their notice, it is less likely that a court will enforce lengthy post termination restrictions on top of this. It will be based on the facts in the case as to whether it is reasonable or not to restrict the employee any further or whether at least part of the length of the restrictive covenants should be offset by the garden leave period. Post-termination restrictions can be reduced by the length of the garden leave period to compensate for the length of time that the employee is not active in the employer’s business. However, there is no automatic off-set unless this is stated in an employee’s contract of employment. If you would like further guidance on this, our employment lawyers can help.
More information can be found in this guide to restrictive covenants in employment law.
What is the benefit to an employer of using garden leave?
It is clear that the main drawback of garden leave to an employer is that they are paying an employee (and providing them with benefits unless these have been expressively carved out in the employee’s contract of employment) for that employee not to provide any financial benefit to the company and may also be paying somebody else to cover that employee’s job as well. However, there may be some advantages to an employer exercising a garden leave clause, such as:
- There is maximum control over an employee on garden leave at home, whereas the alternative might sometimes be an employee who is disruptive or damaging to the employer if allowed to continue to attend work. An employee on garden leave must stay away from the workplace and generally is not permitted to contact clients, staff or suppliers. However, as stated above, they continue to owe all contractual duties, including implied terms such as the duty of trust and confidence, good faith and fidelity and so must remain loyal to the employer and maintain confidentiality whilst still employed on garden leave;
- Garden leave can allow for a smoother handover period, so that if there are any queries about where in a project an employee has got to or if there is password or contact information for clients or suppliers that need to be passed on, the employer has time to establish what information is needed and to request this from the employee whilst they are still bound by their contract of employment and so still have a contractual duty to hand this information to their employer;
- A paid period of non-competition may be more palatable to an employee than an unpaid period and the employer gets the benefit of knowing that the employee will not be able to be disloyal or breach any other terms of their employment contract if they want to receive payment and benefits under that contract;
- The duration of garden leave clauses are less likely to be challenged than the duration of restrictive covenants. As the aim of garden leave is to keep the employee out of the marketplace long enough for any information that they have to go out of date, or for the employee to interfere negatively with the company’s relationship with its customers, suppliers and staff, it is a definite benefit for an employer to be able to exercise a garden leave clause in circumstances where an employee may be a very real threat or pose serious competition to the employer, once they are no longer restricted; and
- Having an express garden leave clause may help deter a competitor from poaching employees and increase the employer's bargaining position with employees when they are leaving. An employer can use a garden leave clause alongside post-termination restrictive covenants for maximum effect, the two do not have to be mutually exclusive.
What are the employer and employee obligations during garden leave?
During garden leave, the employment contract is still in existence, it has just been slightly varied and so the employer must usually pay full salary at the normal time and unless there is a clause in the employee’s contract to the contrary the employee must provide all other contractual benefits and allow the employee to exercise their normal holiday entitlement, and calculate holiday pay in the usual way.
The employee must also continue to abide by their contract of employment during garden leave, except the employee is not generally required to attend the workplace and carry out work for their employer. An employee may be required to perform reduced or alternative duties or just to remain contactable during their normal working hours to deal with their employer’s enquiries. Mostly during garden leave the employee will only have negative obligations such as not to work for any other business, not being disloyal and not using or divulging information, which is confidential to their employer. Whether the duty of fidelity continues to bind an employee on garden leave is debateable and so an employer may want to make this clear in a garden leave clause and remind the employee of their obligations in writing, when they are initially placed on garden leave.
Does an employer have to draft a garden leave clause into an employee’s contract of employment?
If an employer would like to be able to exercise its discretion and place the employee on garden leave, it should seriously consider drafting an express garden leave clause into the employee’s contract of employment. An effective garden leave clause should make clear that the employee will be paid and entitled to contractual benefits as usual and also include a right for an employer to exclude the employee from the workplace and insist that they remain contactable during their usual working hours but do not perform work or contact staff or other company contacts without express permission. An employer may also want to include an option to require the employee to carry out alternative or reduced duties during garden leave.
The employee has a right to work and so if there is no variation to this in the employment contract with an express garden leave clause, an employer must be careful not to isolate an employee or fail to provide them with work, as this could be a breach of contract entitling the employee to resign and claim constructive unfair dismissal.
Just because an express garden leave clause is drafted into an employee’s contract of employment, this does not necessarily mean that an employer can exclude an employee for all of their notice period. If the notice period and so proposed garden leave period is long, an employer must prove that the limitations are reasonable to protect the legitimate business interests of the company, for the period of the notice. If an employer is trying to keep the employee out of the market with no just or proper cause, this could be a breach of mutual trust and confidence by the employer, which is a breach of contract which could render the post termination restrictions null and void.
Can an employee challenge garden leave?
As already stated, if there is an express contractual right for an employer to place an employee on garden leave this is difficult for an employee to challenge if the clause is not for a long period of time and is exercised correctly, as per the contract of employment. However, if there is not an express contractual garden leave clause, can an employee challenge an employee placing them on garden leave? The answer is yes. If an employee is not happy about being placed on garden leave and there is no express contractual basis for this, the employee may try to claim that this is a breach of contract.
Implied into every employment contract is the right to work under that contract and garden leave does not allow the employee to do that, in breach of the contract. This right is not absolute and there are ways in which an employee’s right to work can be compromised, so this is worth discussing with an employment lawyer. However, in some cases the right to work may be fundamental to an employee’s earnings, for example if they rely on bonuses or commission as a proportion of their pay. If an employee is able to prove that placing them on garden leave is a repudiatory breach of contract going to the root of the contract, they will be able to resign and escape serving their full notice and bring the contract, including any restrictive covenants, to an end and potentially bring a claim for constructive unfair dismissal. This could be very damaging to an employer and so if you do not have a garden leave clause in your standard contract of employment, it is advisable to look at including this and to ask a specialist employment solicitor to draft this on your behalf.
If there is no garden leave clause in your employee’s contract of employment and you are hoping to place an employee on garden leave, this may be possible even without the employee’s agreement, but again, it is advisable to take specialist employment law advice first.
How can I enforce garden leave?
If there is a garden leave clause in your employee’s employment contract you can enforce this by way of injunction. For this, you will need to apply to the court who will, if you are successful with your application, order that the employee must abide by the terms of their contract or not join a competitor in breach of their contract.
As injunctions are an equitable remedy they are at the discretion of the court and occasionally courts can order that damages could adequately compensate the employer for breach of contract by an employee and refuse an injunction. This is unlikely if an employee resigns in breach of contract to work for a competitor though, as putting a precise figure on the loss to your business would be difficult and a court would need to weigh up the damage to each party if an injunction is or is not granted. The court must consider whether an injunction is the only way of countering actual harm being done to your business by your employee not being compelled to spend their notice period on garden leave. If it is, the injunction will be granted but only as required to prevent that harm. As with post termination restrictions the protection of the legitimate business interests of your business are the focus and if a garden leave period is deemed to be too long to just protect your business’ legitimate interests a court may order a shorter garden leave period is served.
Summary
Garden leave may offer your business flexibility when an employee’s employment is coming to an end. If this is something that you think might be of benefit to your business you could suggest this by agreement on an ad hoc basis with employees, but to ensure you have a better right to enforce a garden leave clause you will want to have this clearly drafted in writing in your employee’s contract of employment. If you have any questions about garden leave, or restrictive covenants, whether this be the drafting or enforcement of them, our employment law specialists can help.
