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Pottering About on Garden Leave

About The Author

Jade Rigby (Writer)

Jade is a third year Law student at Newcastle University. She is currently completely an Erasmus year abroad at Universitat Pompeu Fabra in Barcelona, Spain, and will return to Newcastle in 2015. Jade is predominantly interested in commercial law, but also writes on criminal and private law topics.

It is very rare to get a moment of peace and quiet when you have a full time job and a home to run. So when the time comes to move on from one office to another in greener pastures, many employees take full advantage of their ‘Garden Leave’. At a very basic level, Garden Leave is the term given to a period of notice that an employee serves at home – or rather, ‘in the garden’. Not all employment contracts provide for Garden Leave, and employees have no right to go on Garden Leave unless it is stipulated that they may in their contract, and even then they will usually only get garden leave at the employers discretion, often depending on circumstances. The employee will still be entitled to their salary and the benefits of their old job, often excluding discretionary benefits and bonuses. They are prohibited, however, from commencing work with a new employer until the Garden Leave has expired. This may seem a ludicrous position for an employer; why would you want to pay someone for time when they are not even working for you?

The rationale behind it all is that some employees are in a position which deals with confidential information or trade secrets. During their time on Garden Leave, they cannot access this type of information. It makes sense for employers to install a provision such as Garden Leave in the employment contracts of these particular employees – doing otherwise could seriously affect their own businesses. The former employee may also become less marketable because, during their Garden Leave, their knowledge and influence within their particular market will erode with time. Customers and business contacts are also less likely to migrate alongside the former employee if there is a period of time when they cannot solicit. The employer, on the other hand, is free to fill the old position with anyone they choose.

In the recent case of J M Finn & Co Limited v Thomas Brook Holliday [2013] EWHC 3450 (QB), the claimant was a stock broking firm. The firm sought an injunction because the defendant stock broker sought to enter new employment one month after handing in their notice, despite a 12 month Garden Leave clause. Garden Leave clauses are comparable to restrictive covenants; both attempt to enforce agreed obligations between two parties. There are important differences though, because a court can adapt a Garden Leave clause where it sees fit. This approach is entirely justifiable because the court is attempting to balance the rights, duties and responsibilities owed between employers and former employees. In tough economic times, employers may find the security offered by Garden Leave to be extremely useful. A marketable senior employee could aid competing companies, which may damage the business of the former employer. Holliday’s case demonstrates a number of significant developments in the law.

Firstly, it is one of the only cases where a 12 month Garden Leave clause has been enforced in its entirety. Usually, Garden Leave is imposed for a maximum of 6 months. Simler J, however, considered that a 12-month Garden Leave clause enables those clients who had not decided whether to transfer their business to build relationships with a new investment manager. A 12-month period enables clients to assess a new investment manager over a full year, so clients are able to make an accurate evaluation of the replacement employee. The judge also considered Holliday’s position; the Garden Leave clause was mutually agreed on and there was no evidence that Mr Holliday would suffer any disproportionate harm whilst serving out the Garden Leave. The 12 month period, although an extension of past case law, was determined by balancing the interests of the former employee and employer. Long Garden Leave clauses can be enforced if they are seen to be reasonable and proportionate; an employer cannot force a former employee into an excessively long or indefinite period of Garden Leave.

Secondly, Simler J upheld the rationale behind Garden Leave clauses. It was held that damages would not be an appropriate remedy in these cases. The employer was at risk of “sustaining loss that will not readily be quantifiable in terms of damages” if Holliday was able to leave immediately and fill his position at Hargreave Hale.

It is not quite as simple as it seems for an employer to send senior employees home and into the garden. Usually, a Garden Leave clause cannot be implied into an employment contract; it must be expressly agreed to in order for an employer to rely on it. This is often construed by the courts as an infringement on the former employee’s right to work. In the case of William Hill Organisation Ltd. v Tucker [1999] I.C.R. 291, for example, an employer suspended a senior employee from his post for the duration of the six-month contractual notice period without stopping his salary and other contractual benefits.  There was no express Garden Leave in his contract. The question for the court was whether the employer had any right to place his employee on Garden Leave. There is no general duty on the employer to provide a skilled employee with work or the opportunity to exercise his or her skills save where there is an express or implied right not to do so.

Certain situations do give rise to this obligation; if the employee was an actor, for example, where publicity is crucial to the success and continuation of the employee’s career. If an employer does not provide an employee with work or skill-based opportunities in such instances, the court may decide that the employee’s right to work has been infringed. This must be decided on a case-by-case basis, and with regard to all of the surrounding circumstances. To do otherwise could cause disproportionate harm to the former employee and give employers unfair leverage. The court in this case held that the employer had no implied right to impose Garden Leave.

In the current economic climate, it is arguably more important than ever before for former employees to be able to argue their case for future employment. The court has to be aware of social needs and the consequences of imposing unemployment on a person. The speed at which industries change and adapt over six to twelve months can be seriously detrimental when facing a mandatory ‘cooling off’ period.

Garden Leave clauses, despite all of the idyllic connotations, can be extremely complicated if an employee wishes to undertake a position at a rival firm.  A lot of the time, we must bear in mind the context of the situation. Much of the case law circulates around tense circumstances where senior employees, who have usually spent some time within the company, suddenly give their notice to leave. This can usurp business strategies, partnerships and, at a social level, even complicate friendships. Employment issues have dominated the headlines throughout the financial crisis, so it makes sense for employers and employees to ensure that such matters are agreed upon prior to notice to quit being handed in. If drafted carefully, a precise Garden Leave clause can prevent lengthy, expensive courtroom battles.

Further Reading

Gov.uk, ‘handing in your notice – Garden Leave’.

Littleton Chambers, ‘Garden Leave and Gandhi’ .

Blackstone Chambers, ‘Employee Competition: Covenants, Confidentiality, and Garden Leave’

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Tagged: Commercial Law, Employment Law

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