Giving garden leave to a departing employee can be beneficial to both the employer and the employee. But there are legal issues to consider.
What is garden leave?
Garden leave is the workplace practice of instructing an employee to remain away from the workplace and not to perform any duties during part or all of their termination notice period.
It is sometimes called gardening leave instead. The name arises from the assumption that an employee with time on their hands is likely to spend it relaxing in their garden, tending to their plants instead of being inside at work. To garden is just a euphemism to spend time pursuing hobbies.
The employee may have resigned, or the business may have made them redundant or dismissed them.
Garden leave is intended to keep the employee away from the day to day operation of the business. The employee is usually requested not to complete any work, attend any workplace, or communicate with any other employee, contractor or customer.
Who can be put on garden leave?
Garden leave is usually given to more senior executives because the benefits of doing so (discussed below) are usually greater when the employee is in a managerial position or is a company director.
But it may be given to any employee whose continued presence at work poses a business risk.
Are employees on garden leave paid?
Usually, a person on garden leave remains an employee of the business, entitled to all benefits of employment, including full pay and allowances such as for holiday.
They are likely to be required to make themselves available for work if requested
But it is also possible that a 'garden leave clause' in their employment contract might vary their rights during a period of garden leave. While statutory employment rights cannot be reduced, additional benefits such as use of a company car or company property might no longer apply.
Why give an employee garden leave?
In summary, there are commercial and legal benefits of putting an employee on gardening leave. These arise primarily because the employee remains bound under the terms of their employment contract and therefore under the control of the employer during the employee's notice period. However, there is no obligation on the employer to provide work or access to the workplace or access to information, colleagues or clients.
Pros of gardening leave
The advantages of keeping an employee away from the workplace are mainly those related to maintaining business as usual and preventing disruption.
A departing employee would find it more difficult to:
- persuade other employees or clients to leave the business (known as poaching)
- reduce the morale of remaining employees by talking down the business or senior management
- cause damage or harm to the business by their physical presence (such as 'accidentally losing' a key to an important piece of machinery)
- copy and steal confidential or sensitive company data, whether know-how or client contact information
But there are also commercial advantages in having the person retained, albeit at a distance. For example, they may be able to:
- answer queries that a successor might have, or ensure a smoother handover during a transition period, without appearing to step on the toes of the successor
- appear to clients to remain active in the business during the handover to the employee's successor so as to protect client goodwill
By being out of the day to day business for long enough, any confidential information that the exiting employee might have had, which might be useful to a competitor, might become out of date and therefore no longer sensitive.
There are also legal advantages. Garden leave:
- prevents the employee from working for a competitor or acting as a consultant to a competitor in a self-employed capacity until the period of notice has ended
- ensures that the employee remains bound by the contractual clauses in their employment contract during the period of gardening leave, including duties of fidelity and confidentiality (implied terms)
- allows the employer to seek damages and injunctive relief to prevent the departing employee from causing damage to the business and benefiting from any breach of their ongoing duties
Garden leave is a useful tool where the post-termination restrictive covenants in an employment contract may be difficult to enforce against the employee. These might include, for example, a restriction on the industry area in which the employee can work. Restrictive covenants are often challenged on the basis of unfair restraint of trade. if the departing employee is not allowed to trade for anyone else in any case (because they remain employed by the employer), then there is no unfair restraint of trade.
The existence of an express gardening leave clause within a contract of employment also may dissuade competitors from poaching. If they know that information will be out of date by the time the employee starts work, that information has less value.
Cons of gardening leave
The most significant disadvantage of putting an employee on gardening leave is the cost of retaining them on full pay without the benefits of their involvement in the business.
This can be expensive, particularly since the departing employee is likely to retain all other contractual benefits, such as pension contributions or healthcare insurance.
If a replacement is hired so as to have a handover period, the employer will have to pay both the outgoing employee and their incoming replacement for a number of months.
Additionally, an employer should be mindful that in the absence of any express contractual provision for garden leave in the employment agreement, giving such leave may interfere with an employee's right to something else. This might be a right to work in order to maintain a professional level of skill, or a right to work in order to be remunerated, where the employee's remuneration is partly based on commissions or bonuses. Preventing the exercise of these rights might result in a breach of contract claim or a claim of constructive dismissal.
If the employment contract has been breached, the employer would lose the advantage of other post-termination clauses, such as those of confidentiality.
When should gardening leave be avoided?
If cash is tight
If the business cannot afford to keep a senior executive employed on their normal salary without having them working, a payment in lieu of notice (PILON) might be more affordable to the business. This does require either the consent of the employee (which should be recorded in a written agreement) or an express contractual clause in the employment contract.
Post-termination restrictive covenants in an employment contract are notoriously difficult to enforce, because they are effectively a restraint of trade, but they may be enough to give some protection to business interests.
If the notice period is greater than six months
Restraint of trade is more likely to take place if the period during which the employee may not work is a long one. Exactly how long is not determined, but it must be 'reasonable'.
For most industries, any more than six months is considered unreasonable.
It is not often that a senior executive will have a notice period of more than six months, but some do. If your employee does, you may want to offer PILON instead, or use garden leave only for the last few months. However, there must be a gardening leave clause in the employee's contract to allow you to do this.