Garden leave

The power to put a senior executive or a highly skilled employee on garden leave is often exercised by employers when such an employee resigns or is dismissed.

Not only does it prevent the employee from immediately competing against the employer’s business, it also enables the employer to prevent an employee on notice from acquiring trade secrets, developing further contacts in the business and increasing his skills and knowledge.


New approach?


Courts have been much more willing to uphold garden leave clauses, subject to reasonable duration, than post-termination restrictive covenants, provided the employee continues to receive, at the very least, his contractual entitlements to salary and benefits.

But, controversially, in the recent Christensen case, the Court of Appeal said that when an employer puts an employee on garden leave, the implied duties of good faith and fidelity cease to exist. It distinguished between the employer-employee relationship and the contractual relationship existing between the parties.

During garden leave, only the contractual relationship continues to exist. In that case, the court refused to grant a garden leave injunction where Christensen intended to join a rival. But the court did grant an injunction to enforce part of a separate contractual clause which dealt with restrictions on the employee’s activities during his employment.


Consequences


This case could substantially reduce the attractiveness of garden leave for employers. In the absence of any other restrictive contractual provisions, employees could be free to breach the duty of fidelity by, for example, soliciting clients or enticing employees away. An employee on notice could therefore potentially cause more damage to the employer than after the termination date, when he may be subject to express and enforceable post-termination restrictive covenants.


Conclusion


It is therefore important to draft both garden leave and other restrictive clauses in the contract of employment. There should be an express garden leave clause, dealing with the duties and responsibilities of the employee during garden leave.

A garden leave clause should make it clear that the employer can ask the employee not to carry out any work duties. It should also deal with remuneration on garden leave, allow the employer to prohibit contact with colleagues, clients and other business contacts and to seek the return of confidential information and business equipment.

However, while this was thought to be enough, now after the Christensen decision, it is also important to ensure that the contract of employment contains a separate clause dealing with an employee’s activities generally during employment. This clause should make express the duties of good faith and fidelity So that if the Christensen case is followed in the future, the employer will be able to rely on the express provisions, in the absence of any implied duties.