What happens when one of your employees resigns and seeks employment with one of your competitors? Is there anything you can do to protect your business’ interests and confidential information?
It is becoming more and more common for employees to direct an employee to take ‘garden leave’ after they have handed in their notice of resignation or their employment has otherwise been terminated.
This article explains what you need to know before you require an employee to take garden leave.
What Is Garden Leave?
Garden leave is paid leave in which an employee must not work or perform any of their normal work duties. It is often utilised for the duration of an employee’s notice period after they have resigned or, in some cases, had their employment terminated.
It can be a handy way for a business to ensure that the employee doesn’t access confidential information or company resources for the benefit of their new employer.
Do I Need To Include A Garden Leave Clause In My Employment Contracts?
It is important to know what your obligations and responsibilities are before you direct an employee to take garden leave. Getting it wrong can have some serious adverse consequences for your business, such as breach of contract or the employee taking legal action against you.
While it’s not necessary for you to include a garden leave clause in your employment contracts, including one alongside restraint of trade provisions may ensure that you are lawfully directing an employee to take garden leave. This is because you, as an employer, do not have an automatic statutory or common law right to not provide your employees with work.
The rights of employees are largely determined by their employment contract, as long as they are not less than what is required by the Fair Work Act 2009 (Cth) or any relevant industry award. So, when you are drafting an employment contract, you should make sure that it’s flexible enough to let you direct your employee to take garden leave if you need to.
However, there are some situations in which sending a worker on garden leave would be considered a breach of the employment contract. These include:
- Where the employment contract expressly requires you to provide work for the employee. This commonly arises in circumstances where remuneration relies on the performance of work, such as commission and bonuses
- Where the performance of work is necessary to maintain a professional level of skill, for example doctors and surgeons
Your Obligations As An Employer
A series of obligations and responsibilities arise when you direct an employee to take garden leave. Getting it right is essential to protecting your business’ best interests.
One of the most important things to remember is that you are still bound by the employment contract, even though your employee is not performing work while on garden leave.
You will need to continue paying all of the employee’s wages and entitlements throughout the whole garden leave period. If you don’t pay, or even reduce, any remuneration they are entitled to, you could be in breach of the employment contract. We look at this further in the case of Actrol Parts Pty Ltd v Coppi (No 3) below.
Be sure to clearly define the period of garden leave the employee is required to take. Garden leave cannot last for an indefinite period.
What Does Your Employee Have To Do While On Garden Leave?
In the same way as you, your employee will continue to be subject to the terms of the employment contract. Generally speaking, this will mean that they will need to continue to act in the business’ best interests and not disclose any confidential information. In addition to this, your employee may be prohibited from working for another employer if restricted by the contract.
In most cases, it is also expected that the employee must not attend work or perform any work duties. Notwithstanding this, they must remain contactable and available to return to work throughout the period of garden leave.
If your employee breaches any term of their employment contract while they are on garden leave, you may be able to hold them liable for the contravention.
How Does Garden Leave Help Your Business?
Many advantages of garden leave stem from the fact that employees continue to be bound by their employment contract throughout the notice period, before they leave your company.
As we touched on above, this means that the employee must protect your business’ interests.
In addition to this, the practical consequences of the employee being restricted from attending work or performing any of their normal work duties creates a gap in their ability to access confidential information. By the time they commence employment with a competitor, the information they have obtained while working for you may no longer be relevant or useful.
The lack of physical presence also minimises the risk of the employee soliciting clients and encouraging other employees to leave with them.
Garden leave is also beneficial in circumstances in which employment ceases due to a breakdown in relationship between you (or your business) and the departing employee, by allowing for early separation without negatively impacting either party financially.
What Have The Courts Said?
The issue of garden leave has been contested at the Supreme Court level several times in recent years, with the Courts making some important findings affecting employers and employees alike.
Actrol Parts Pty Ltd v Coppi (No 3)
The case of Actrol Parts Pty Ltd v Coppi (No 3)  was a case heard by the Supreme Court of Victoria.
Mr Coppi was placed on garden leave by Actrol Parts Pty Ltd (Actrol) for his four-week notice period, after which he had planned to commence employment with a competitor. While he was on garden leave, Actrol took back the company car and phone provided to him as part of his remuneration package. Midway through the notice period, Mr Coppi then started working for the competitor company.
In Court, Actrol sought nominal damages against Mr Coppi, arguing that he breached his employment contract by beginning to work with the competitor during the notice period. In response, Mr Coppi argued that Actrol repudiated the employment contract by taking away the company car and phone. As a result of the repudiation, he argued that he was free to start work before the notice period was up.
Some key points made by the Court include:
- Employers must maintain all employee remuneration and entitlements throughout the notice period for the leave to count as garden leave.
- Employers may only place an employee on garden leave if it is an express or implied term of the employment contract. In situations where there is no express provision, the court will only imply that garden leave is taken if it is during the notice period.
Grace Worldwide (Australia) Pty Limited v Alves
The Supreme Court of NSW looked at an employer’s right to direct an employee to take garden leave in Grace Worldwide (Australia) Pty Limited v Stephen Alves .
In this case, Mr Alves provided his notice of resignation to Grace Worldwide (Australia) Pty Limited (Grace Worldwide) in order to become the new CEO of one of their main competitors. Grace Worldwide then directed Mr Alves to take garden leave for the duration of his three-month notice period.
Mr Alves asserted that Grace Worldwide unlawfully directed him to take garden leave and, as a result, repudiated the employment contract. He further argued that the repudiation meant that he no longer needed to comply with any restraint of trade provisions contained within his employment contract.
In contrast, Grace Worldwide argued that sending Mr Alves on garden leave was an implied term of the employment contract, as their obligation only extended to paying his remuneration and not to provide him with work.
Some key points made by the Court include:
- Whether garden leave is valid depends on the employment contract in each case.
- There are some cases in which employers must provide their employees with work, on the basis that they are contracted to work. This may include things such as work within the entertainment industry.
- Other cases where employees are entitled to work arise in circumstances in which they may be deprived of remuneration if they do not perform work. This is often the case with commission and bonuses.
In the current case, it was found that being placed on garden leave did not impact Mr Alves’ remuneration. Additionally, the Court found that there was an implied term in the employment agreement that allowed Grace Worldwide to place Mr Alves on garden leave.
How can you make sure your business is set up and ready to respond to an employee resigning? Whether you’re seeking guidance for how you can best protect your business’ interests, or want someone to draft or review your employment contracts, we have a team of friendly lawyers who are ready to help!
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