Garden leave: it’s not a walk in the park.

Garden leave may sound relaxing, but the circumstances which call for it are most certainly not.
It occurs:

  • when an employee is directed by an employer to take paid leave or to undertake special duties;
  • during the notice period following termination or resignation of their employment.

Employees are usually directed to take garden leave to prevent them, during the notice period, from:

  • accessing and using the employer’s confidential information or intellectual property; or
  • soliciting clients introduced to them during the course of their employment.

Directing an employee to take garden leave usually only occurs where such right is expressly contained in the employment contract. However, in the absence of express garden leave provisions, courts may imply them into an employment contract for the duration of the notice period.

In full bloom: advantages of garden leave for an employer

The key advantages of garden leave are that an employee can be prevented from:

  • working for a competitor during the notice period; and
  • soliciting clients and employees for themselves or for a competitor.

Employees are still employed by the employer during the notice period and therefore must:

  • continue to abide by the terms of their employment contract; and
  • not work for a competitor, or setup a business in competition with their employer, in breach of their duty of fidelity to avoid conflict of interests.

An employee is required during the notice period to comply with the employer’s reasonable and lawful instructions, including complying with the employer’s directions not to:

  • attend the workplace;
  • access and use the employer’s confidential information and intellectual property; and
  • communicate with clients, customers, suppliers, employees or agents of the employer.

It’s not all rose-y: disadvantages of garden leave for an employer

The main disadvantage of garden leave is that an employee is required to stay away from the workplace, but remains on full pay and entitlements (eg company car, insurance etc) during the garden leave period.
If the employer fails to pay the employee their salary or contractual entitlements, a court may find that the employer has constructively dismissed the employee or repudiated the employment contract, allowing the employee to work for a competitor during the notice period.[1] In addition, there is the risk that such repudiation may cause any post-employment restraint of trade to be unenforceable.[2]

Essential landscape

There are advantages and disadvantages for employers using garden leave mechanisms to protect their business interests against outgoing employees. Employers should consider whether the benefits of directing an employee to take garden leave outweigh the costs associated with it.
To protect their business interests, employers should:

  • ensure their employment contracts contain express garden leave provisions entitling them to direct an employee to take garden leave during the notice period;
  • maintain the employee’s salary and contractual entitlements during the garden leave period; and
  • use garden leave provisions in combination with post-employment restraint of trade provisions.

[1]Actrol Parts Pty Ltd v Coppi (No 2) [2015] VSC 694.
[2]Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSCA 181.

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Posted on: 28 July 2017