Garden Leave

1. Introduction

Garden leave is a colloquial term for the situation in which an employer instructs an employee who has either given or been given notice of termination not to come into work for the duration of the notice period. It is most commonly used when the employee has given notice of resignation to go to work for a business that is in competition with the employer.

The advantage of garden leave for the employer is that, for the duration of the notice period, the employee remains bound by their duty to serve the employer in good faith and is therefore not free to undertake any work that is inconsistent with that duty. At the same time, the employee is away from the workplace and does not have access to any confidential information or the contact details of clients.

The obvious disadvantage is that the employer must continue to pay an employee who will not be doing any work for it. Therefore, garden leave can be a costly option.

Employers should think carefully about when the cost of garden leave is outweighed by the benefits.

 2. Avoiding breach of contract

Depending on the nature of the work involved, the stakes can be high. If a key employee is proposing to leave to work with a direct competitor, this may present a serious threat to the employer's position. In such circumstances legal advice should be taken at the earliest opportunity.

A key risk is that the employer could do something that amounts to a breach of its contract with the employee. If the breach is sufficiently serious, it could allow the employee to resign without notice and go across to the new employer and any restrictive covenants contained in the contract could be rendered unenforceable by the employer's breach.

Therefore, while the process of placing an employee on garden leave can be a very formal one, it is important that the employer remains courteous and professional.

It should recognise that the employee is entitled to leave to work for a competitor and that doing so is not a breach of contract (provided that the employee complies with any restrictive covenants). If the employer is rude or abusive to the employee or treats the employee as if they have behaved inappropriately this could amount to a breach of trust and confidence.

3. Garden leave clauses

It is not always necessary for there to be a specific garden leave clause in the contract of employment, but if an employer puts an employee on garden leave where there is no clause expressly allowing this, it risks a claim for breach of contract as, in some circumstances, contracts have been found to include an implied "right to work".

In some positions, such as sales, the employee could be dependent on bonus or commission payments that can be earned only when the employee is actually working.

Other jobs may be such that the employee needs to work to keep their skills fresh.

An extended period of forced absence may result in the employee's skills deteriorating because of either a lack of practice or a lack of contact with the marketplace. In those situations, it may be an implied term of the contract that the employee will be allowed to work for the duration of their employment.

Therefore, the safest option is for employers to ensure that employment contracts contain an explicit clause allowing them to impose garden leave during any notice period. Like any express term, this will override the implied term provided that it is sufficiently clearly phrased.

A clause allowing garden leave should:

·       state that the employer has no obligation to allow the employee to work during any period of notice given by either the employer or the employee;

·       expressly provide that the employer can require the employee to stay away from the workplace during any notice period;

·       allow the employer to give instructions to the employee as regards contact with clients and customers during the garden leave period;

·       allow the employer to give instructions to the employee as regards any contact with the employee's next employer during the period of garden leave; and

·       provide for the return of equipment, for example mobile phones or laptops, at the beginning of the garden leave period.

Where the employer is relying on an express clause when putting an employee on garden leave, it should refer to this in its correspondence with the employee.

4. The length of garden leave

The garden leave period is limited to the duration of the notice either given to or given by the employer. In this respect, garden leave should not be confused with restrictive covenants, which may impose restrictions on employees beyond the end of their employment.

Those restrictions must be limited to a "reasonable" period, but there is no such limitation on the length of a contractual notice period or, therefore, no restriction on the length of a contractual garden leave period.

However, in the absence of a specific garden leave clause, it may be possible for a period of garden leave to be so long as to be regarded as excessive.

For example, if an employer attempted to enforce six months of garden leave, it could be argued that spending so long away from the workplace would be detrimental to the employee's skills and therefore amount to a breach of an implied term of the contract.

The employer should consider whether the key role of the garden leave is to prevent the employee from accessing confidential information during the notice period, or to delay the employee's move to the competitor. If the former, the employer may consider discussing a shortened notice period with the employee.

5. Ensuring that the garden leave clause is enforceable

The general rule is that the parties to a contract are bound by the terms that they agree. Therefore, there will not usually be a problem for an employer seeking to rely on an express garden leave clause, provided that its terms are clear and unambiguous.

However, even express terms are arguably subject to the implied term of mutual trust and confidence. This means that if the garden leave clause is used in an oppressive or unfair way, for example in terms of the restrictions with whom the employee can communicate, or how the employer monitors their conduct, the employee could argue that there has been a breach of contract. This could allow them to resign without notice in response to the breach and immediately begin work for the competitor. Therefore, employers should be careful to ensure that a garden leave clause does not go further in seeking to restrict the employee than is appropriate to protect their legitimate interests.

6. The start of the garden leave period

It is normal for the employee to be put on garden leave as soon as they have given notice. Precisely what steps the employer takes to protect its position will depend on the sensitivity of the situation and on what is at stake.

Where a high-value employee is leaving to work for a direct competitor and there is a serious danger that confidential information will be at risk, the employer will be justified in taking a cautious approach to the treatment of the employee from the point at which they give notice.

Where an employee who is likely to be placed on garden leave gives notice of resignation, the manager should usually bring in an HR representative as soon as possible. At this point the employer can disable the employee's online accounts and ask the employee to hand over their security pass.

The employer should require the employee to hand back any storage device (such as USB drives) in their possession.

It is usual for the employee to remain supervised by an appropriate person, usually from HR, from the moment that they give notice to the time at which they leave the premises to begin garden leave.

The employer should give the employee a letter informing them of the terms applicable to the period of garden leave and ask the employee to sign a written acknowledgement that they have understood and accept them.

This will assist the employer in the event of a future dispute, but the employer will not be prevented from enforcing the garden leave period if the employee refuses to sign the acknowledgement.

In practice, there may not be time for the employer to prepare this letter before the employee leaves the premises, in which case it should send it to them as soon as possible.

7. Arranging a handover of the employee's work

The employer may also want to consider how the employee's clients and customers should be told that they are leaving. This takes careful judgment as there may be a risk that some would choose to follow the employee to their new employment.

It may be appropriate for the employer to instruct the employee to write a letter or email to clients and customers with whom they have worked, informing them that they are leaving the business and giving a contact name for future enquiries.

The employer should ask the employee about current work in progress and make arrangements for transferring the work where appropriate. It is better if this can be done before garden leave begins, when the employee is still present in the workplace and has not yet "disconnected" from the work.

While an employee on garden leave technically remains at the disposal of the employer and can therefore be approached to assist in any handover issues, the reality of the situation is likely to be that, once garden leave has started, it will be difficult for the employer to obtain any useful work from the employee. It may also be unwise for the employer to ask the employee to undertake any specific work during the notice period because of the risk that important information may find its way to a competitor.

An employer that conducts exit interviews when an employee resigns may ask the employee to undergo an exit interview before leaving the premises. Where this is not practicable the employer can conduct the interview at any stage in the notice period, if necessary, by telephone or by sending the employee a questionnaire to complete. 

8. The employee's personal effects

While the employer can arrange for the employee's personal effects to be sent on afterwards, it is easier for the employee to gather their own belongings before leaving.

Where the employee clearing out their desk could be unduly disruptive to colleagues, or where the employee might feel uncomfortable being escorted to and from their desk (for example, when the contract has been terminated by dismissal), it may be better for the employer to send the belongings on later.

It is important that the employee's personal belongings are handled by an appropriately responsible member of staff and that the belongings are treated with respect and proper security. A list should be compiled of any belongings sent on to the employee in case there is a later dispute.

9. Pay and benefits during the garden leave period

During garden leave, the employee is still employed and is generally ready and willing to work. Therefore, they should not be worse off than if they had been working, unless it is specifically provided for by an express clause in the contract of employment.

This means that all benefits under the contract must continue as if the employee had not given, or been given, notice. This includes pension contributions, health insurance and any other financial benefits.

As far as equipment such as a company car or mobile phone is concerned, the position depends on whether these are provided as tools to allow the employee to do their job or are benefits to which the employee is entitled.

If the company car is for personal use, the employer should allow the employee to continue to use it for the duration of the garden leave period. When the garden leave ends, the normal procedure for handing over the company car at the end of employment should be followed.

The same general principle applies to a mobile phone. However, even where the phone is partly for the employee's personal use, the handset used by the employee may contain information about clients and customers that the employer needs to secure. The employer could choose either to remove the information from the phone or to give the employee a different handset purely for personal use.

The employee may also have equipment belonging to the employer at home. Usually, they can return this to the employer in the normal way at the end of the notice period.

However, where the equipment may contain sensitive information, particularly relating to clients and customers, the employer may insist that the employee hand this over at the beginning of the notice period.

Arrangements should be made for collecting such items as soon as the employee has informed the employer that they are leaving.

10. Annual leave

As the employee remains employed throughout garden leave, holiday will continue to accrue in the normal way. Depending on the contractual arrangements the employer has in place for the taking of holiday it may be possible for the employer to require the employee to take outstanding holiday during the notice period.

Essentially, the position is no different from that of an employee who has given notice, but who is still coming into work.

If the employer could require such an employee to take holiday during their notice period, it can require an employee on garden leave to do so. If there is no relevant agreement covering the timing of holiday, the statutory provisions will apply, and the employer will be able to require the employee to take holiday by giving notice of at least twice the length of the period of leave that it requires them to take.

11. Monitoring the employee during the garden leave period

The employee remains bound by their duty to serve the employer faithfully during the period of garden leave. This means that any steps taken by the employee to begin work with a competitor will amount to gross misconduct.

The action that the employer should consider to prevent the employee from taking such steps will depend on how critical a threat the employee working for a competitor would pose. In the vast majority of cases, the employer will simply instruct the employee not to undertake such work, while remaining alert to any rumours to the effect that the employee is acting in breach of this obligation.

A more suspicious employer may periodically attempt to contact the employee at home to check that they are not working elsewhere. However, despite the name, an employee on garden leave is not confined to the immediate surroundings of their house and will be under no general obligation to remain in touch with the employer.

Failing to answer a telephone call is not an indication that the employee has begun work for a competitor.

Where the employer knows the identity of the competitor for whom the employee intends to work, it may be appropriate for it to write a letter reminding the competitor of the employee's contractual obligations. If the competitor induces the employee to break that contract, that is in itself actionable, and the competitor may be liable in damages. If the employer makes it clear that it is prepared to enforce its rights in this way, it may have a deterrent effect.

In extreme cases, where the stakes are high, the employer may choose to take a more proactive approach. It is not unknown (particularly in high performance and sport environments) for employers to hire private detectives to check if the employee is breaking their obligations. However, such a step should be rare, and the employer should tread carefully. There is a risk that such behaviour could amount to a breach of mutual trust and confidence, allowing the employee to resign and resulting in the employer losing what protection against competition it had.

The employer should take legal advice before taking any formal steps to place the employee under any form of surveillance.

12. Legal action to prevent a breach of contract by the employee

Working for a competitor during the garden leave period will be an act of gross misconduct by the employee and would justify summary dismissal.

However, if the employer takes this step, it will bring the contract to an end, and with it the obligation on the employee not to work for a competitor. While there may be outstanding restrictive covenants that will continue to apply, the period of protection enjoyed by the employer will inevitably be shortened.

A more productive route for the employer would be to seek a High Court or county court injunction against the employee, preventing them from undertaking work for the competitor in breach of their contractual obligations, if there is evidence that this is what the employee intends to do. Such injunctions can be obtained quickly and without the need for a full trial, provided that the employer can show that the breach contemplated by the employee would cause it damage for which compensation would not be an adequate remedy.

This generally means some active damage to the employer's business rather than the loss of an identifiable amount of work. This is a complicated process and detailed legal advice, and representation is needed in respect of any particular application.