The recent falling out between Ron Dennis and the McLaren F1 team shows that even the glamorous world of Formula 1 is not immune from the reaches of employment law.

It's a perfect example that demonstrates the power of a good garden leave clause when there is a senior management disagreement.

Background

A garden leave provision will commonly be found in a senior employee's contract of employment. A comprehensive provision can be one of the most valuable tools in the employer's toolkit when it comes to terminating employment.

Such a clause allows the employer to remove duties from an employee and exclude them from the workplace whilst they are serving out their notice period, irrespective of which party gives notice to the other. Often this is referred to as 'gardening leave' as the employee is required to stay at home, in the garden if they wish!

Garden leave clauses typically also prevent an employee from having any contact with colleagues or customers whilst expressly preserving the employee's obligations of confidentiality and fidelity to the employer. This makes it an excellent business protection tool.

Garden leave is not the same as suspension and there is no need for there to have been any wrongdoing for an employer to place an individual on garden leave.

If drafted correctly, it is at the employer's discretion whether or not to trigger the garden leave clause, there is no right for the employee to be put on garden leave. An employer will usually want the widest discretion to put the employee on garden leave for some, all or none of their notice period.

The downside for the employer is that because the employment contact is still in effect during any period of garden leave, it remains bound to pay the employee and continue to provide all their contractual benefits. This is in contrast to restrictive covenants which continue to apply to an individual after employment has ended and the employer's contractual obligations no longer apply.

What do they look like?

A typical clause would say:

'During any period of notice of termination (whether given by the Company or the Executive), the Company shall be under no obligation to assign any duties to the Executive and shall be entitled to exclude [him] from its premises, and require the Executive not to contact any customers, suppliers or employees provided that this shall not affect the Executive's entitlement to receive [his] normal salary and contractual benefits.

During any such period of exclusion the Executive will continue to be bound by all the provisions of this Agreement and shall at all times conduct [himself] with good faith towards the Company.'

Why are they useful?

A well drafted garden leave provision can provide the business with considerable protection whilst also allowing the employer to maintain control over an individual and their behaviour:

  • while on garden leave the employee is still subject to all the other express terms of their employment contract. Any exclusive service clause will therefore prevent the employee commencing employment with another organisation during their notice period;
  • although there is uncertainty about whether the implied duty of fidelity continues to apply during garden leave, any contractual duty will continue to apply;
  • by keeping the individual out of the business during their notice period, he/she will not have access to the most up to date information including prices, strategy and customer contacts which thereby reduces the risk of the individual soliciting those customers for a competitor once the employment has ended;
  • while the employee is out of the business, they remain under the direction of the employer; consequently the employer can still oblige the individual to assist with any unexpected event of which they have knowledge;
  • the placement of an employee on garden leave without an express term may be a breach of contract, the result of which could be to render any post termination restrictive covenants unenforceable. The use of an express clause will therefore ensure that the employer retains all options to protect its business;
  • subject to satisfying reasonableness in length, courts have been more willing to enforce a garden leave provision than restrictive covenants.

How is such a clause enforced?

Where an employee refuses to comply with a garden leave clause, enforcement is by way of an injunction ie a court order that requires the employee to adhere to the terms of the contract. Employers that have ever dealt with restrictive covenants may balk at the prospect of obtaining an injunction as these are very costly to obtain.

Although any injunction is a discretionary remedy (which the Court may or may not grant), the risks associated with the enforcement of a garden leave provision are significantly lower than similar procedures for restrictive covenants because the scope for the clause to be deemed unenforceable is much smaller.

While it is rare for an employer to take this step, it can be a powerful tool where there is evidence that an employee is intending to leave employment without giving full notice in order to commence work with a competitor.

Did you know?

According to the recent judgment of the European Court of Justice in the case of Maschek v Magistratsdirektion der Stadt Wien, an employee on garden leave does not accrue annual leave for the duration of that period. The only exception will be where the employee is able to show that they are unfit for work due to sickness and in such circumstances annual leave will accrue during those periods. It may still be preferable to expressly provide for the treatment of annual leave in the garden leave drafting. For example,

'.the Employee shall be deemed to have taken all accrued but unused holiday entitlement during their period of exclusion and shall not be entitled to any pay in lieu of holiday on the termination of this Agreement.'