The value of garden leave
Including express 'garden leave' provisions into the contracts of employment of key executives in the UK has long been seen as a key 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 it to exclude the individual from the business for some or all of the applicable notice period - thereby keeping the individual away from clients, colleagues and confidential information - whilst still preventing the employee from being able to begin new employment with a competitor.
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 and the particular role of the individual. But express provisions entitling the employer to 'bench' an employee are needed to avoid the risk of the employee seeking to argue - if he or she can establish that the individual's particular role entails a right to work in order to preserve their skill set etc - that exclusion from work is a breach of contract entitling them 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.
Issues that can arise — for employee and employer
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 may come as a welcome opportunity to an executive, at the old employer's expense, to recharge the batteries and regroup before the next challenge. But it may also be frustrating for an executive who wants to get on with the new job or who feels that his or her ability to deliver for the new employer or his or her 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.
Employees can seek to challenge the imposition of garden leave by refusing to comply with the old employer's requirements, starting work for the new employer and effectively throwing down the gauntlet to the old employer to put up or shut up. Either the old employer lets the matter pass or seeks some form of legal recourse. The most obvious option is to launch proceedings for an injunction to stop the employee from continuing with his or her new role. An injunction claim is not without its uncertainties, leaving aside the potentially very significant costs. 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 keeping 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. The alternative is to sue the departing employee, and potentially his or her new employer, for damages - which is often difficult in terms of proving loss.
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 less easy to monitor than when the employee continues to attend work. There is therefore a risk that once out of day to day sight 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.
Drafting to maximise flexibility and potential protection
In order to address these concerns, from the drafting perspective, 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. 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 he or she has been sent on garden leave, garden leave provisions may explicitly reiterate the obligation on the individual not to work elsewhere and comply with his or her duties of fidelity, confidentiality, etc. They 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, thereby facilitating any monitoring of the employee's activities and whereabouts which the employer may wish to conduct.
Nonetheless, the risk still remains of the employee committing undetected breaches of the individual's ongoing obligations of good faith, fidelity, etc. One way in which the employer may try to counter this risk is by having open to it, as an alternative to full blown garden leave, the contractual ability to vary the employee's duties and provide the individual with special duties or projects rather than having the individual continue in his or her normal role during the notice period. Such a provision enables the employer to keep more of any eye on the individual's activities because the employee remains in the office on a day-to-day basis whilst removing the employee from his or her normal role with the access to confidential information, clients, etc that this entails. Such a provision may not be attractive in all circumstances - for example, if continued attendance at the office entials the employee retaining access to colleagues whom the individual might unsettle or seek to poach or if there is still a risk of the employee becoming aware of the employer'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 even challenge its use as in some way in breach of the duty to maintain trust and confidence.
Key executives' contracts should include garden leave provisions which give the employer maximum flexibility and protection in relation to a departure. That said, given the risk of undetected breach, sending an executive home during the notice period may not always be the best plan and the employer may want to consider whether the particular circumstances warrant making sure it can keep an eye on a departing executive.
A version of this OnPoint was previously published by HR Bullets.