Gardening leave: avoid the potential weeds

Analysis

Gardening leave: avoid the potential weeds

Gardening leave — forcing an executive who has resigned to take paid leave during their notice period — has a number of potential ‘weeds’ that limit its effectiveness.

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‘Gardening leave’ refers to the practice of forcing an executive who has resigned to take paid leave for the length of his/her notice period, in order to protect the business by preventing contact with sensitive information, clients, etc.
 
A recent article on the UK website Personnel Today argued that the practice has a number of potential ‘weeds’ that limit its effectiveness. The article below discusses the use of gardening-leave provisions in an Australian context.
 
How gardening leave works
 
Provided there is a term in the employee’s contract that permits it, the employer can exclude the employee from contact with the business for the notice period between submitting his/her resignation and finally ending employment. The employee remains on full pay for that period and other entitlements continue to accrue and be available.
 
Gardening leave has two aims:
  1. To prevent the employee from working for another organisation for that period of time or, at least, delay the event of going to work for a potential competitor.
  2. To block access to clients, co-workers, confidential information and intellectual property, so that the employee can’t use that access in ways that could damage the employer and/or benefit his/her future employer.
The cases for and against
 
In theory, a gardening leave provision can prevent an employee having access to confidential and commercially sensitive information, contact with clients, etc, while simultaneously delaying him/her from working for another employer.
 
The drawback of gardening leave for the employer is the cost of having an unproductive employee on full pay for what could be a lengthy period. It’s not uncommon for senior executive contracts to set notice periods of three, six or even 12 months.
 
As a result, you need to be certain that the potential damage the employee could cause by remaining at the workplace during the notice period is greater than the amount spent paying for gardening leave.
 
The employer has the alternative of removing most of the threat to the business by paying the employee in lieu of notice as soon as he/she resigns. Again, this would be payment for no work being performed, and it has the additional drawback that the employee would be able to immediately commence work with a new employer.
 
However, opportunities for the employee to gain access to information, clients and co-workers will be reduced, if not eliminated. Payment in lieu, combined with an effective post-employment restraint clause in the employment contract, may be a better overall strategy, because it has the potential to solve both problems.
 
Finally, the option of gardening leave may make it harder for an employee to obtain other employment, due to the delay before he/she can start another job.
 
For employees, the situation will depend on individual circumstances and preferences. Some will welcome a lengthy break from work without loss of income, and use it to relax and recharge, or pursue other outside-work projects they would not otherwise have time for.
 
Others may be keen to start in a new job, and may be frustrated and bored by the delay. They may also believe that not working for a lengthy period may diminish their work skills, knowledge and experience; for example, by losing contact with current industry developments.
 
How effective is it really?
 
The Personnel Today article argued that gardening leave does not provide a guarantee that an employee will be quarantined from the business. The employee may still find covert ways to contact clients, co-workers, etc, that are difficult for the employer to detect and prove.
 
Doing so is now easier than before due to technology developments such as smartphones. It can also be argued that it is harder to monitor and control the day-to-day activities of an employee who is not physically present at the workplace.
 
The employee could also challenge the gardening leave provision by starting work with a new employer well before the provision expires. Even if the new employment contract does not ‘officially’ commence until after the gardening leave provision ends, the employee can still work from home and do some initial research or preparatory work for the new employer, and this will often be hard to prevent.
 
If the employee does contravene the gardening leave provision, the employer may have to commence legal proceedings against the employee to gain any redress. This may include seeking an injunction to prevent the employee performing any work for another employer, or suing the employee for damages.
 
In the case of an injunction to enforce the gardening leave provision, the general rule is that a court will only enforce a provision to the extent reasonably necessary to protect the employer’s business.
 
As a general rule, you will have to prove that a legitimate threat to the business exists and the court will also consider whether the provision unreasonably restricts the employee’s career and earning opportunities.
 
For example, the court will evaluate whether the length of the gardening leave provision exceeds the time period by which any threat to the business will have dissipated, and whether its length is enough to diminish the employee’s skill set, industry knowledge, etc, to the detriment of employment prospects. Further to the latter point, an employee may be able to argue that he/she had a right to continue working, in order to preserve his/her employability.
 
In the case of suing for damages, the employer will have to prove that the employee has breached the provisions of his/her contract, and that quantifiable loss or damage to the business has occurred.
 
Cases that have gone to court in Australia have usually involved very high-profile employees (eg CEOs of large corporations) and very large sums of money.
 
Making gardening leave provisions tighter and more constructive
 
One option available to some (mainly larger) businesses is to place employees on ‘special duties’ or specific project-type work for the duration of the leave period. This work, if available, can still quarantine those employees from access to information, etc, but also allows you to monitor their activities more closely because they still spend the majority of work time on-site.
 
However, employment contracts will need to contain an express provision allowing the employer to vary the work duties in that way; otherwise the employee may have grounds for a legal challenge (eg on the possible grounds of demotion, constructive dismissal due to exclusion from working, or breach of the duty of trust and confidence, depending on the individual circumstances of the case).
 
Careful attention to drafting of gardening-leave clauses in employment contracts is also required. The following points are relevant.
    • Express provisions allowing the employer to use the option of gardening leave are required. Otherwise, the employee may be able to challenge the decision on the grounds mentioned in the previous paragraph.
    • The provision should specifically state that the employee cannot perform other work during the period of leave and must comply with the duties of fidelity, trust and confidentiality during the period.
    • It is advisable to include obligations to provide contact details and to remain readily contactable during the period of leave (eg if any work-related queries arise).
    • The employee should not be financially disadvantaged by being placed on gardening leave.
    • The provision should give the employer as much decision-making flexibility as is practicable; for example, the option to choose whether to quarantine the employee from the work site completely or to place him/her in a position where conduct can be more closely monitored.
    • Gardening leave provisions may be used in conjunction with clauses that provide for post-employment restraints (ie restrictions on employment once the employee has left the organisation). (See Related Articles, at right, for more information.)
Further information
 
C Wynn-Evans, Is Garden Leave Overrated? , published on Personnel Today (UK), 18 December 2013. Accessed 5 January 2014.
 
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