How long can you keep your employees in the garden? Marks & Spencer recently poached Mark Bolland from Morrisons. Morrisons responded to Mr Bolland’s resignation by immediately putting him on garden leave.  This is not an uncommon move and garden leave is a very useful tool for an employer but when should employers use garden leave and  what the limits of its use?

There are a variety of options open to employers looking to protect their brands and the confidential information, contacts and connections held by key employees when those employees resign. These include clauses in the contracts for key employees relating not just to garden leave but also confidentiality, intellectual property and where appropriate restrictive covenants.

Garden leave is the most onerous of all restrictions for departing employees.  The employee cannot work for anyone else or set up in business on their own or with others whilst they remain your employee. An employee on garden leave still has a duty to act in his employer’s best interests so should not be diverting clients or trying to poach employees for a new employer or business, for example.  Increasingly garden leave clauses are drafted so as to provide that employees on garden leave will only be paid basic salary and are prevented from obtaining substantial elements of their packages, in the form of commissions and bonuses.  Courts are generally more likely to enforce garden leave clauses than restrictive covenants on the basis that the employee continues to be paid a salary during the garden leave period.  Courts have shown some reluctance to enforce garden leave clauses which are excessive in length, however, unlike is the case for restrictive covenants, if a Court deems that a garden leave is too long, it can substitute the length which it deems reasonable rather than strike it out entirely as unenforceable.  It not hard to see why some employees are very keen to negotiate their way out of a long period of garden leave.

The potential arguments employees might raise in objection to a garden leave clause  being invoked are: that there is no legitimate reason for keeping them in the garden, that their skills will atrophy on garden leave and that this will put them at a disadvantage.  Arguments may also be raised as to whether certain garden leave clauses constitute an unfair contract term. Leading commentators are divided on the issue as to whether employers need a legitimate interest protected by the garden leave clause in order for it to be enforced, one arguing legitimate interest is required due to garden leave acting as a restraint of trade, the other that the contractual provision and the payment of salary is sufficient. On balance it appears that the argument that legitimate interest is required is likely to triumph, however, it is usually easier to satisfy a Court that garden leave is a proportionate means of achieving that legitimate aim (whether it be protection of confidential information or client contacts) than it is for restrictive covenants. 

What is clear is that employees will be able to walk away from the contract of employment, including garden leave and any restrictions if the employer commits a fundamental breach of contract when the employee has committed no breach.  You need an express contractual right to be able to put employees on garden leave. Even if an employer has this right, it might be possible for an employee to argue that the length of the garden leave period and the circumstances in which the employee is placed on garden leave are such that they amount to a fundamental breach but this is not an easy argument for an employee legally as he is arguing against the express terms of the employment contract.

In practice, garden leave clauses should be drafted so that they are exercised at the employer’s discretion and expressly allow the employer to prohibit the employee from contacting clients and employees, from coming into the office (where they would have access to confidential information), and which requires the employee to resign from directorships (so they no longer have to be given confidential information which as a director they would otherwise be entitled to).

Be careful to update contracts as employees are promoted to increase the length of notice (and therefore the time you can keep the employee on garden leave). If you do not you may find yourself with insufficient protection as the employee has outgrown the contract. 

A long period of garden leave may render post-termination restrictive covenants unenforceable. For example, a 6 month garden leave coupled with a 6 month non-compete keeping the employee out of the market for 12 months may be too excessive a period of restriction in the courts eyes for certain jobs.  Courts would expect to see an offset from post termination restrictions of time spent on garden leave. In the above example, with an offset the maximum period of restriction would be 6 months not 12.

Martha Arnold is a solicitor in the employment department at Fox Williams LLP.  Martha can be contacted on 020 7614 2650 or on marnold@foxwilliams.com.