An employer’s breach of an employment contract by requiring the return of an iPhone and car from an employee on gardening leave, without having a contractual right to do so, amounted to a repudiation of the employment contract that allowed the employee to treat the employment as being at an end and lawfully start work with a competitor. 

What happened?

An employee resigned from his job as a State Sales Manager by giving his employer four weeks’ notice in accordance with his contract of employment.  The employer put the employee on leave with pay during his notice period (also known as gardening leave), and directed him to immediately return the car and iPhone that the employer had provided to him for both work and private use.  The employee claimed that the employer had repudiated the employment contract by unlawfully directing him to take gardening leave without having a contractual right to do so and, as a result, he began to work for a competitor during the notice period.  The employer then brought a breach of contract claim against the employee arguing that the employee had breached the implied duties of loyalty and fidelity to his employer by starting to work with another company during the notice period.

The Court held that the employee did not breach the implied duty of loyalty and fidelity to the employer, because the employment contract had already been repudiated by the employer.  The employer repudiated the contract by depriving the employee of the car and iPhone during the notice period.  The direction to return the car and phone was not expressly or impliedly permitted under the contract and result in an unauthorised reduction in the employee’s remuneration or interference with his salary package during the notice period.

However, the Court found that in this particular case, the employer did not repudiate the employment contract by directing the employee to take gardening leave.  Although the employment contract did not include an express term allowing the employer to direct the employee to take leave with pay during the notice period, it was reasonable for the employer to not want the employee to perform actual work during the notice period in circumstances where the employee would continue to have access to confidential information, as the employer had reason to think he would work for a competitor. 

The employee accepted the repudiation of the contract when he commenced working for a competitor.  As such, the employer could not rely on the employment contract to restrain the employee from working with a competitor for the remaining notice period.

Lessons for employers

For the avoidance of doubt, employers should incorporate express terms into the employment contract permitting the employer to direct an employee to take gardening leave during any notice period of termination of employment and restraining employees from working for competitors where appropriate, taking into account the legitimate interests of the business.