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GARDEN LEAVE
“Garden leave” is the term given to a situation whereby an employee
is required to serve out a period of notice at home (or “in the garden”).
During this period the employee continues to receive all salary and benefits
but is prohibited from commencing employment with new employers until the gardening
leave period has expired. It is a practice which employers often adopt with employees
who have a certain status whereby they have access to confidential information
or customers and where they are leaving to join a competitor. During the gardening
leave period the employee’s access to such information or customers is
either restricted or denied.
Case Law
Employers used to assume, albeit that there was always a danger in doing so,
that they could enforce gardening leave even in the absence of an express “garden
leave” clause in the contract of employment. The danger of this assumption
was highlighted in William Hill Organisation Ltd -v- Tucker 1998 where the
Court of Appeal refused to grant an injunction where the contract of employment
contained no garden leave clause and no clause entitling the employer not to
provide work. Whilst the Court of Appeal rejected the argument that there is
a general implied obligation to provide work under a contract of employment,
the Court accepted that in certain circumstances, where the employee’s
duties are specific or unique and the skills required to discharge those duties
require frequent exercise, the employer’s obligation under the contract
of employment may, in addition to payment of the agreed remuneration, extend
to an obligation to provide work.
In Symbian Ltd –v- Christensen 2001 the Court of Appeal upheld the decision
in Tucker (above) and stated that even a clear garden leave clause will only
be enforced to the extent that it is reasonable so that such a clause is in
fact subject to similar rules as restraint of trade clauses.
In Clark v Nomura International plc 2000 the employee was dismissed by three
months’ notice on garden leave. The dismissal itself was not wrongful,
but during the notice the date occurred for the employee’s annual bonus.
Unlike previous occasions his employers awarded him nothing even though his
trading had continued to be profitable during the garden leave period. The
judge held that the employers were in breach of contract, quantified the bonus
that would normally have been paid at £1.35 million, and awarded that.
Contractual Provisions
For an employer to be able to rely on the ability to place an employee on
garden leave the contract of employment should include, as a minimum, a provision
that the employer is under no obligation to provide work to an employee. This
provision should be stated to apply throughout the duration of employment,
not just when notice to terminate has been given. However, from an employer’s
perspective it is far more preferable for the contract of employment to have
in addition a separate and express garden leave clause which should include
the following terms applicable during the garden leave period:
- a provision that
the employer is relieved from any obligation to provide the employee with
work;
- a right to exclude the employee from the work place;
- a prohibition on
contact with customers and/or clients;
- a prohibition on the employee from
undertaking any other employment during the garden leave period;
- an indication
of how the loss of any entitlement to bonus or right to earn commission
will be compensated for to avoid any potential claims of
constructive dismissal.
In the absence of any one of the above employees may not necessarily be restricted
from the activities they may undertake whilst still technically employed by
their employers.
Finally, at the time of termination, if there is any exchange of letters between
the employer and the employee, it would appear that the employer will need
to expressly state that the garden leave provisions will be relied upon. Otherwise,
as in the case of Hutchings -v- Coinseed Limited 1998, an exchange of letters
may have the effect of varying and even overruling the terms of an express
garden leave clause with the result, in that particular case, that Ms Hutchings
was able to take up work and indeed be paid for working for a competitor whilst
also able to recover a notice payment from her existing employers!
Conclusion
To rely on such clauses employers need to ensure that they have appropriately
drafted clauses in their contracts of employment and that they exercise their
right to place employees on garden leave carefully. Failing this, employees
need not assume that, by merely being placed on garden leave, they are prevented
from doing anything and should seek legal advice as to their rights and obligations
during this garden leave period.
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