Garden leave

Overview

• A garden leave clause in a contract of employment will reserve the right to the employer of sending the employee home on full pay whilst they are serving out their notice period.
• It most often arises where an employee gives notice to his employer but the employer does not want to employee to come into work for the period of his notice or to go and work for a competitor or set up a competing business.
• The use of garden leave clauses is usually, but not necessarily, confined to fairly senior employees.

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Use of garden leave clauses

• Garden leave clauses are sometimes used to get round problems caused by the uncertainty over whether post-termination restrictive covenants will be enforceable.
• A garden leave clause can be a useful tool for employers with regard to senior employees as it removes the individual’s access to confidential information and other client or customer information.
• The employee will be kept out of the market place for the duration of their notice period which means that the individual’s knowledge of the market place becomes outdated.
• Clients are less likely to go with the individual because of the wait involved and the employer is provided with some protection against competitive activity.
• It also means that the employer has time to re-allocate the individual’s role and introduce the new person to clients and customers.

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Issues with garden leave clauses

• Courts appear to be reluctant to enforce long garden leave clauses as the employee’s right to work is considered important along with his or her right to keep up specialist skills.
• Employers wanting the power to require a period of garden leave should ensure that there is a an express clause in the employee's contract (as there is usually no implied right to do so).
• Putting an employee on indefinite garden leave may well justify the employee resigning and claiming unfair constructive dismissal. Also, if an employer tries to impose a garden leave clause unilaterally, he will be in breach of contract. The result of such a breach will be that the employee is released from all contractual obligations including any post-termination restrictive covenants.
• It is common practice for the garden leave clause to provide that, although pay and benefits will continue during the garden leave period, the employee will not be entitled to any discretionary or bonus payments.
• If an employee is not going to work for a competitor, the employer cannot force an employee to serve out their garden leave period (as the courts will not uphold garden leave in these circumstances).
• A garden leave clause should be expressed in writing and should set out each party's rights and obligations during this period. It should state that the employer is not obliged to provide the employee with work and should also make it clear that the employee remains bound by his duty of fidelity.
• Great care is needed when drafting garden leave clauses. Whether they will be enforced is a matter a court and it will balance the risk to the 'old' employer posed by the employee as against the employee's interest in wanting to work. Much will depend on the type of information to which the employee has access and his or her seniority in the 'old' business.

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Resources

The Policies and Documents section contains a letter to a departing employee reminding him/her of garden leave conditions and some specimen garden leave clauses (subscribers only).

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