Alison Wallace, head of employment practice at Steptoe & Johnson solicitors looks at the legal considerations of garden leave and whether it is indeed a ‘powerful weapon’ for bosses looking to outplay the competition.

For many employees the thought of being paid to stay at home and out of the office during the summer months is an absolute dream. For some it becomes reality. Indeed garden leave has been evoked successfully in footballing and advertising circles as well as many partnership and City firms.

What is garden leave?
The term is used to describe the situation whereby an employee is required not to attend the employer’s premises for work during their notice period or until the expiry of a fixed term contract.

Instead, the employee is paid their full contractual salary and benefits to stay at home either in the garden or otherwise occupied. This device is used to minimise potential damage caused by an employee’s departure and can be beneficial for the employer particularly in the situation where a senior or key employee tenders their resignation in order to join a competitor or set up a rival business.

By virtue of remaining an employee, the individual is precluded from engaging in competitive activities until the notice period has expired by which time any client confidential information the employee has is likely to be out of date and stale. Moreover, the employee’s links with customers or clients are broken giving the employer time to re-establish and confirm their trading connection.

In theory therefore the tactic of garden leave can be a powerful weapon. By preserving the employment relationship during the notice period an employer can continue to enforce the obligation of fidelity and an employee can be prevented from working anywhere else during this period. It can be more flexible than any restrictive covenant whose duration if too long is apt to be struck down. However, the weapon is not available for everyone.

Can an employee refuse to go on garden leave?
The existence or otherwise of a right to work was looked at in the Court of Appeal’s case of William Hill v. Tucker.

The case decided that given the wide range of typical contracts where a right to work may exist, there is an increased necessity for an employer to incorporate an express garden leave clause into contracts in order to insist that an employee go on garden leave.

Even where there is an express garden leave clause, the courts will not necessarily grant an injunction to enforce the garden leave. If an employer seeks such an injunction then it must be justified on similar grounds to that necessary to the validity of a restrictive covenant.

Where there is no such clause and an employee can establish a contractual right to work the employer’s instruction to the employee to remain at home on garden leave will amount to a repudiatory breach of contract releasing the employee from all their contractual obligations (and any post termination restrictive covenants).

It is an expensive exercise and an employer must also think about putting all team members onto garden leave where this would be justifiable if it is in the interests of the business. It would not be acceptable to put an employee into a holding office without normal amenities under the guise of having the employee perform handover tasks.

An employer would run the risk of repudiating the contract of employment and thereby precluding them from enforcing either garden leave clauses or any post termination covenants.

Can the garden leave be accelerated?
If an employee feels confident about their future employment, then being asked to go on garden leave as soon as they have handed in their notice can be an appealing prospect particularly in the summer months or to provide a sabbatical leave for the employee that would not otherwise be available.

However, time can hang heavily with an employee once the novelty of being on garden leave has worn off. It is then that the employee will have to consider approaching their employer to ask to be released from any further garden leave to join their new employer.

The employer is under no obligation to accede to that request. Provided the employer pays the normal benefits including any bonus entitlement and allows the employee to take their holiday leave, the employee will find it difficult to insist on their right to work for another employer. They will not be able to argue that they are not going to a rival or will not work in a field which will put them in competition with their employer. Nor will they be able to argue that their skills will go rusty whilst they are on garden leave.

If an employee leaves before the notice period and garden leave period is expired what can an employer do?
The employer must establish the danger imposed to the business by breach of the garden leave clause.

In most cases, if a sufficiently adequate period has been spent on garden leave, the employee should be released without further obligation to join their new employer with the reminder that the restrictive covenants have not been waived and will be enforced if they are breached.

If the court exercises its discretion to grant injunctive relief to enforce and stay in the garden it will only do so for a period which is absolutely necessary to protect the employer’s legitimate interest. This may be less than the employee’s full contractual notice period.

Where there is a full valid post termination restrictive covenant in the employee’s contract, the employer is entitled to have it enforced even where a period of garden leave has been served.

There is no basis for any set off of the two periods but more and more contract terms will provide for this. In an exceptional case where a long period of garden leave has already elapsed the Court may decline on the grounds of public policy to grant the employer any further protection after the garden leave period has expired.

What are the terms of garden leave?
Rarely does an employment contract contain specific terms or garden leave. These will often have to be negotiated separately once the employee has left the office. It is very important for both parties to know what is expected of the other and what can be done.

The employee should know that the garden leave starts with immediate effect. That there is no need to come into the office although the office reserves the right to contact them by email, fax, telephone or letter.

The employee should be required to surrender their keys and security pass. They must be required to have no contact with clients even if they’re friends and except for social reasons will not be able to take the contact list with them.

They should have no contact with colleagues during office hours Monday-Friday unless on a purely social basis. The person should additionally not be able to undertake any other remunerative work even to fill in the time without the express permission of the company. They must of course receive pay and benefits and should be entitled to keep any company car and be paid normal expenses.

The departing employee must make themselves available to deal with office enquiries as and when, although it will not usually be necessary for them to have to telephone the office each day to show that they are still around.

There should also be provision made for the employee to take holidays on reasonable notice during the period of garden leave so that there is no accrued holiday pay entitlement at the end of this period. The employee should be reminded of their obligations of good faith and fidelity as per their employment contract.

Although this obligation does not preclude them from making preparation for their new position this does not mean they can be involved actively in the solicitation of their employer’s customers or disclosure of confidential information.

Summary round-up
The terms of any garden leave need to be reasonably effective as well as capable of being monitored and policed. If the employer wants to allow for the question of idleness, then the employee should be able to do charitable work or voluntary work.

The parties should agree what the company should say to clients who ask where the employee is as well as team members.

Saying that an employee has been suspended may be misleading because it implies impropriety. It is also inappropriate to pretend they are ill or indisposed. Admitting the employee is on garden leave should infact be sufficient by way of explanation of the absence.

An employer might feel justifiably angry that an employee is moving on and is therefore no longer acting in the best interests of the company. However, businesses have to accept that some employees may see their companies as a stepping stone rather than a job for life, just in the same way as most businesses wouldn’t expect the majority of staff to serve with them until retirement. Not all employees who leave are disaffected.

If the benefits of garden leave are outweighed by the employee leaving forthwith then the employee should receive their pay in lieu of notice so they are free to start with a new employer straight away. If the employee then wants to sit in the garden for six months at their expense they can do so. The chances are, however, that they will want to get straight back to work.