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Garden leave. Many will have heard about the term, but not really understood what it means and what it can do.
In essence, garden leave is the usual term given to clauses in an employment contract that gives an employer the right to require the employee to work his or her notice period at home. In fact – and in reality – quite often the employee does not work at all, but is required to be available.
The reason employers use garden leave clauses is because they want to distance an employee from clients and colleagues to minimise the risk of poaching when the employee actually leaves. These clauses are generally used in conjunction with restrictive covenants.
Why employers might need a garden leave clause
Garden leave clauses are typically found in the employment contracts of senior employees or directors.
The clause typically entitles the employer, after notice has been given by either party, to require the employee to stay at home and not work or contact colleagues, clients and suppliers.
Doing so also removes the employee’s ability to access confidential databases, information and business-critical data (for example, contact details for clients). An employee can be given notice and immediately put on garden leave and their access to systems cut off.
Garden leave clauses are not just important for contracts for senior employees, though. Where any employee has valuable and transferable client relationships, employers can use garden leave to protect their relationships with clients before the employee leaves.
Many employees will also have access to important business “know-how” and data. Garden leave can significantly mitigate the risk of data theft or misuse in the lead up to an employee leaving.
For a practice, it is likely to be important to protect the relationship with the pet owner, which is often quite personal to the vet. While restrictive covenants (for example, prohibiting working within a certain distance of the practice, or from soliciting or working for clients, for a period) will be helpful, enforceability is often an issue. However, if a departing vet is on garden leave, they cannot work elsewhere and this can be enforced if they try to break that obligation.
Fundamentally, a comprehensive garden leave provision can be one of the most valuable tools in an employer’s toolkit when it comes to terminating employment. However, pros and cons to their use exist.
Advantages of a garden leave clause
The key advantages of garden leave are that the employee continues to owe all their contractual duties. These can include:
- implied terms, such as the duty of trust and confidence, to the employer
- can allow for a useful handover period
- a paid period of non-competition may be more palatable to an employee than an unpaid period
- garden leave clauses are much more easily enforceable than restrictive covenants such as a non-compete clause
Disadvantages of a garden leave clause
No real disadvantage exists to having the clause in the contract – it will always be up to the employer whether to implement it.
If it is implemented, the flipside – and key disadvantage – is the employer needs to continue to provide all contractual pay and benefits during the period of garden leave. However, the employer can expressly exclude the obligation to provide benefits in the employment contract (although this is not commonly done, it is usual for benefits to continue).
Another disadvantage is that for garden leave clauses to be most effective they generally require a minimum three-month notice period – and often longer – to be included in the employment contract.
In the main, employers often do not want to pay expensive employees to sit at home and do nothing while being paid. However, it is open to the employer to implement the garden leave clause for part only of the notice period.
It needs to be said that employees have a right to work. So, in the absence of the garden leave clause, an employer might not lawfully be able to place an employee on garden leave.
Isolating an employee, or failing to provide them with work without the express power, could be regarded as a breach of contract, depending on the circumstances.
This would entitle the employee to resign and claim constructive dismissal on account of the employer’s breach of contract. This can enable the employee to avoid any restrictive covenants owing to the breach of contract. This is a complex area and specific advice should always be taken before doing anything.
Garden leave clauses are often combined with restrictive covenants
As previously mentioned, garden leave clauses are often used in tandem with restrictive covenants. The reason is simple – employees often acquire confidential information, such as trade secrets and knowledge of sensitive business interests.
These include the identity of key clients and their requirements, pricing and profitability, supplier details, and future strategic and marketing information.
It can be tempting for employees to use information acquired through their employment after their employment has terminated, either in business for themselves or to further the interests of their new employer who may be a competitor.
So, the protection provided by putting an employee on garden leave may need to be combined with restrictive covenants applying post-departure. Also, the lack of comprehensive protection in employment contracts can make it more difficult to sell a business.
Much consolidation is taking place in the veterinary profession and a practice will be more attractive to a buyer if the key employees can be prevented from competing for a period if they leave.
The advantage of a garden leave clause is that it is not subject to the same requirements for enforceability as a covenant, which can only be enforced in so far as it goes no further than is reasonably necessary to protect the legitimate interests of the employer.
If employee breaches garden leave
Where an employee refuses to comply with garden leave, clauses can be enforced with a court injunction, often preceded by a cease-and-desist letter. But this is expensive.
The remedy is also discretionary, but a court is highly likely to enforce a contractual garden leave clause, whereas a restrictive covenant is usually much more arguable.
The strength of a garden leave clause usually means that an employee will comply when threatened with an injunction and offer undertakings to comply.
Employment contracts should be kept under review
Ultimately, employers should have appropriate garden leave and restrictive covenant clauses in their employment contracts for key staff.
These clauses should be regularly reviewed, with such reviews taking place when an employee moves to another role or is promoted.
Failing to write good contracts with appropriate clauses can prove to be very expensive.