In the absence of any right at common law or under Australia’s Fair Work Act 2009 (Cth), the general rule is that gardening leave must be conferred by an express power in an employment contract. In a remarkable decision by the Victorian Supreme Court in Australia it was held that the employer’s power to direct an employee not to work could be implied into the employment contract.
Mr Coppi had been employed as the National Sales Manager of Actrol Parts Pty Ltd, a refrigeration wholesaler, since 2010. In August 2014 he tendered his resignation and Actrol directed him to go on gardening leave for the duration of his four week notice period. During this time, Actrol required him to return his company-issued motor vehicle, iPhone, iPad and laptop computer. Mr Coppi, believing that Actrol had no right to place him on gardening leave and had repudiated the contract of employment by unilaterally removing his contractual benefits, commenced employment with Totaline, a competitor of Actrol’s, nine days before the end of his notice period.
Actrol launched legal action claiming that Mr Coppi had breached his contract’s implied duties of loyalty and fidelity by starting work with another company during his notice period and trying to poach an Actrol employee. (Allegations of confidentiality breaches were also initially made, but these were not pursued in the absence of evidence that confidential information had been shared or misused). While the case involved several legal issues, the primary question for the court was ‘whether the plaintiff was entitled to place the defendant on leave with pay during the resignation notice period.’
The court found that, despite there being no express contractual provision entitling Actrol to place Mr Coppi on gardening leave, the power could be implied into Mr Coppi’s contract because ‘it was entirely reasonable for Actrol to protect itself from the risk of harm that might flow from [Mr Coppi] performing normal duties in the particular factual circumstances’. Those particular circumstances included the fact that Mr Coppi, as a sales manager, was directly responsible for a number of sales representatives within a territory. Furthermore, the company had reason to believe that Mr Coppi would go and work for a competitor. The court therefore found that the gardening leave term was necessary to give business efficacy to the contract because ‘without it, Actrol would have to maintain Mr Coppi in a position where he would have continuing contact with its sales representatives and confidential information.’
Despite finding that gardening leave was ‘reasonable and equitable’ in the circumstances, the court went on to find that Actrol had repudiated the contract of employment when it withdrew Mr Coppi’s work car and electronic devices (because this amounted to a unilateral reduction in his salary package) and that Mr Coppi accepted Actrol’s repudiation, indirectly, when its managing director telephoned Totaline and recognised Mr Coppi’s voice on the answering machine.
Implications for employers
- As businesses are settling into the new year it is a good time to review your employment contracts including considering whether your employment contracts currently contain adequate and enforceable provisions which protect your business in the event that an employee resigns.
- Even though the court in Actrol implied a gardening leave term into the contract of employment this will not always be the case. It is therefore prudent for employers to ensure that there is an express provision in their contracts of employment which entitles them to place an employee on gardening leave for all or part of the notice period.
- Employers also need to be aware that in exchange for an employee’s duty of fidelity while on gardening leave, the employer must keep the employee on its payroll and the employee must receive all contractual entitlements including benefits such as a car or phone. As seen in Actrol, removing any valuable benefit which forms part of an employee’s salary package could amount to a repudiation of the employment contract.