Garden leave

Garden leave legal advice

Garden leave refers to a contractual provision allowing an employer to require an employee to remain away from work during their notice period, while continuing to receive their contractual pay and benefits.

In practice, the employee may not be required to carry out any work but may instead need to remain available to the employer.

Garden leave clauses help employers distance departing employees from clients, colleagues and commercially sensitive information, reducing the risk of client or staff poaching before the employment ends. They are often used alongside restrictive covenants.

Do you need a garden leave clause?

Garden leave clauses are commonly included in the employment contracts of senior employees and directors. They allow an employer, after notice has been given by either party, to require the employee to:

• remain away from the workplace;
• refrain from working or contacting colleagues, clients and suppliers; and
• cease accessing confidential information, databases and business-critical data.

Garden leave can also be valuable for employees who are not senior but have important client relationships, commercially sensitive information or valuable business knowledge. It can help reduce the risk of data theft or misuse before the employee leaves.

A well-drafted garden leave clause can therefore be an important tool when managing an employee’s departure.

Advantages of a garden leave clause

The advantages of garden leave include:

• the employee remains bound by their contractual duties, including applicable duties of fidelity and confidentiality;
• it can provide time for an orderly handover;
• a paid period away from work may be more acceptable to an employee than an extended period of post-termination restrictions; and
• garden leave may be easier to justify than restrictive covenants extending beyond employment, depending on the circumstances.

Disadvantages of a garden leave clause

The main disadvantage is that the employer must generally continue paying the employee’s contractual salary and benefits during garden leave, even if no work is performed. The contract should clearly address any benefits that may lawfully be excluded.

Garden leave is also more useful where the employee’s notice period is long enough to protect the employer’s interests. However, employers may be reluctant to pay an employee to remain at home for an extended period, particularly where the employee is highly paid.

No garden leave clause in the employment contract?

An employee does not automatically have a right to be placed on garden leave. Without an express contractual power, requiring an employee to remain away from work or denying them work may amount to a breach of contract, depending on the circumstances. In some cases, this could give the employee grounds to resign and claim constructive dismissal.

Employers should therefore ensure that employment contracts contain appropriate garden leave provisions before relying on them.

Why are garden leave clauses are often combined with restrictive covenants?

Employees may have access to confidential information, including trade secrets, key client relationships, pricing, profitability, supplier details and future business plans. There may be a risk that this information could be used after employment ends, either by the employee in a new business or in the interests of a competing employer.

Garden leave can help protect these interests during the notice period. However, it does not replace the need for appropriate post-termination restrictive covenants, which may protect the employer after employment ends.

Inadequate contractual protection can also create difficulties when selling a business, particularly where its value depends on technology, confidential know-how or established client relationships.

What if the employee breaches garden leave?

If an employee fails to comply with a garden leave clause, an employer may consider seeking a court injunction, potentially after sending a cease and desist letter. Court proceedings can be expensive, and an injunction is discretionary. Depending on the circumstances, obtaining undertakings may provide an alternative to litigation.

A garden leave clause must be sufficiently clear and go no further than reasonably necessary to protect the employer’s legitimate business interests. The appropriate duration depends on the employee’s role, the interests requiring protection and the circumstances at the time enforcement is sought. Senior employees and directors may have notice periods of up to 12 months, but a lengthy period will not automatically be enforceable in every case.

The court will assess the clause in the circumstances existing when enforcement is sought. It may refuse to enforce the full period if doing so would be unreasonable or unnecessary to protect the employer’s legitimate interests.

Keep your employment contracts under review

Employers should regularly review garden leave and restrictive covenant provisions for key employees, particularly when an employee is promoted, changes role or takes on access to more sensitive information.

Appropriate contractual protections can help reduce risk when employment ends and protect valuable business relationships and information.