Is garden leave overrated?

Garden leave

Charles Wynn-Evans questions whether garden leave is all it is cracked up to be or if there are hidden pitfalls for the employer.

For many years, including express "garden leave" provisions into the employment contracts of key executives has been seen as an important aspect of an employer’s armoury in relation to the protection of its business, along with other express terms relating to matters such as confidentiality, intellectual property and post-termination restrictive covenants.

Placing an executive on garden leave protects the employer’s business by enabling the employer to exclude the employee from its business for the notice period – thereby keeping the individual away from clients, colleagues and confidential information, while still preventing the employee from being able to commence new employment with a competitor.

The cost of protection

Garden leave protection, of course, comes at the cost of continued salary payments and benefit provision. Its efficacy may also be affected by the length of the relevant notice period. However, express provisions entitling the employer to "bench" an employee are needed to avoid the risk of the employee seeking to argue – if the individual can establish that the particular role entails a right to work in order to preserve the individual’s skillset and so on – that exclusion from work is a breach of contract entitling the individual to claim constructive dismissal.

A valid claim of constructive dismissal enables the individual to evade the remainder of the notice period and any applicable restrictive covenants.

Garden leave may sound like a fragrant and attractive option for an executive who resigns. A period of what may be perceived as paid holiday could come as a welcome opportunity to an executive to recharge their batteries and regroup, at the old employer’s expense, before the next challenge.

But it may also be frustrating for an employee who wants to get on with their new job, or who feels that his or her ability to deliver for the new employer or general position within the relevant sector is prejudiced by being kept out of the market. The individual’s new employer may feel the same way – and this is where the problems can start.

Challenging garden leave

Employees can seek to challenge garden leave by refusing to comply with the old employer’s requirements and starting employment with the new employer regardless. The old employer is faced with letting the matter pass or suing for damages, which is often difficult in terms of proving loss, or launching proceedings for an injunction to stop the employee from continuing with his or her new role.

An injunction claim is not without its uncertainties. The court will only enforce garden leave to the extent necessary to protect the employer’s business. Consequently, an injunction for the full notice period to keep an employee who seeks to join a competitor early out of the market is not always guaranteed. But at least the employer has the argument available to it if it has a suitably drafted garden leave clause in place. Another concern that can arise in relation to garden leave is that its apparent benefit to the employer can, in practice, potentially be circumvented by the employee relatively easily. Once an employee who resigns is removed from the business, the individual’s day-to-day activities are inherently harder to monitor than when the employee continues to attend work.

There is, therefore, a risk that the employee will, whether from home or otherwise, in some way participate in competitive activity and contribute in some way to the new employer’s business, and that this will be difficult to detect. From the drafting perspective, in order to address such concerns garden leave, clauses will often do more than just entitle the employer to exclude the employee from its premises and not provide the employee with work.

In order to forestall an argument that the employee’s duties of loyalty, fidelity and the like are reduced in seriousness – "attenuated" as the cases describe it – in circumstances where the employee has no active involvement in the business because the individual has been sent on garden leave, the relevant contractual provisions may explicitly reiterate the obligation on the individual not to work elsewhere and comply with duties of fidelity and confidentiality.

The garden leave clause may also include an obligation to remain contactable to deal with queries arising from the individual’s role and to provide contact details for the period of the garden leave.

Nonetheless, the risk still remains of the employee committing undetected breaches of their ongoing obligations of good faith and fidelity.

Preventing risks

One way that the employer may try to counter this risk is by having open to it the contractual ability to vary the employee’s duties and provide the individual with special duties or projects rather than their normal role, as an alternative to full-blown garden leave.

Such a provision enables the employer to keep more of an eye on the individual’s activities because the employee remains in the office on a day-to-day basis while still being removed from his or her normal role and the access to confidential information or clients that this entails.

These types of provision may not be attractive in all circumstances – for example, if the employee retains access to colleagues whom they might unsettle or seek to poach, or if there is still a risk of the employee becoming aware of the company’s developing business plans and confidential information. Also, an executive may not agree to the employer having that level of flexibility in his or her contract and may challenge its use as in some way in breach of the duty to maintain trust and confidence.

By way of conclusion, key executives’ contracts should include garden leave provisions that give the employer maximum flexibility and protection in relation to a departure. That said, given the risk of undetected breach, sending an executive home may not always be the best plan, and employers may want to consider whether or not the particular circumstances warrant keeping departing executives where they can be seen.

Charles Wynn-Evans

About Charles Wynn-Evans

Charles Wynn-Evans is a partner at Dechert LLP.
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