In Standard Life Health Care Ltd v Gorman and others, the Court of Appeal upheld an injunction (interdict) preventing agents who were paid on a commission only basis from joining a competitor until the end of their notice periods. The Court also held that Standard Life had an arguable case that it was entitled to rely upon a suspension clause in their employment agreements to keep them from attending work during their notice periods, even though this prevented them earning any remuneration.
The agents were contractually bound to give three months' notice. They attempted to resign with immediate effect in order to join a competitor, in breach of the notice provisions. Before they gave notice, their new employer made an application to register them as appointed representatives. It was also alleged that one of the agents had obtained by deception confidential information concerning Standard Life's business.
Standard Life refused to accept the agents' resignations and chose to hold them to their full notice periods. It also suspended them for the full duration of their notice periods, relying on a provision in their contracts which allowed suspension "for such period as…necessary in order to carry out a full investigation", if Standard Life reasonably believed an agent to be in breach of contract.
The Court upheld an injunction barring the agents from selling private medical insurance for anyone other than Standard Life for the duration of their notice periods. The collective effect of the suspension and injunction was that the agents could not earn any money from either their current employment (they had to work to earn commission but had been suspended) or their new employment. The Court held that it was strongly arguable that, where an employee breaches the duty of good faith, the employer is released from the obligation to provide work, even though the contract of employment may continue. It was also strongly arguable that the suspension clause allowed for a general suspension. It would not have made good commercial sense if it had only applied for the period of the investigation.
Impact on employers
- Although this case concerned agents, the Court of Appeal's decision was based upon case law relating to employees. This was a good outcome for the employer, which was able to rely on the agents' breaches of contract to enforce their notice periods, keep them out of the market for a three-month window and suspend them without pay for the duration.
- However, the costs, risks and management time associated with litigation may have been avoided if the employer's contracts had contained an express garden leave clause.
- If the agents had not breached their contractual obligations, the outcome would probably have been different. Where employees are employed on a commission only basis, the employer usually, in the absence of an express term to the contrary, will have an implied obligation not to prevent them from earning remuneration.
- Employers should review their contractual documentation to ensure that they have an express right to place key employees or agents on garden leave. This is particularly important if the employee needs to work to earn all or part of their total remuneration.