Garden leave

Fundamentals / 01 June 2010

Everything you need to know about employment law - Does garden leave work when your star players switch shirts?

Most organisations have a group of key individuals who are privy to business-critical information, or whose experience and contacts provide a significant competitive advantage. While they’re clearly a great asset, they can also be a real risk if they decide to jump ship to a competitor.

So-called ‘garden leave’ is a popular way of controlling an employee’s exit. A worker on garden leave remains employed, but their duties are removed and they must stay away from the office and out of contact with clients and colleagues.

 

Once the worker has left, the business has less power over what they can and cannot do. However, it is possible to limit a former employee’s activities, for a time, through the use of restrictive covenants

Chris Phillips, partner, Maclay Murray & Spens

Typically, garden leave covers an employee’s notice period, where it is known or suspected the individual is going to work for a competitor.

The window of garden leave can ensure any sensitive information held by the departing employee becomes less valuable, as well as allowing the business to adjust.

A clause with the option to place an employee on garden leave should be included in the contract of employment with an explicit restriction on other business interests during employment.

The length of garden leave should protect the employer’s interests. The longer the period, the less likely it is enforceable. To bolster arguments about enforceability, the length of time spent on garden leave should be set against the duration of any other post-employment restrictions.

Once the worker has left, the business has less power over what they can and cannot do. However, it is possible to limit a former employee’s activities, for a time, through the use of restrictive covenants. These can legitimately prevent the poaching of customers and other employees, as well as the use of confidential information.

A non-competition covenant prevents former employees from working for direct competitors, or setting up in competition for a period of time. The imposition of a tough, uniform non-competition covenant across the workforce may send out a strong message, but there is a real risk it would be unenforceable in practice.

The seniority of the employee and the nature of their duties are also relevant. While senior managers may face stringent restrictions to protect against abuse of commercially valuable information, imposing the same measures on junior staff is likely to be viewed as disproportionate.

After the recession, competitors will be vying to take advantage of any increase in spending. Whether through contacts or inside knowledge, senior workers will be a key factor in determining who comes out on top. With the right measures in place, it is possible for organisations to ensure these trump cards are not used against them, while still being fair to employees.

Chris Phillips is a partner in the employment, pensions and benefits team at Maclay Murray & Spens