Keeping departing executives out of the office could allow contractual breaches to go undetected
Garden leave clauses allow an employer to exclude an employee from its business for the duration of that employee’s notice period. This keeps the individual away from clients, colleagues and confidential information, while preventing the employee from joining a competitor. Along with other express contractual terms relating to confidentiality, intellectual property and post-termination restrictive covenants, they can be a key protection for businesses.
Of course, the employer still has to pay the executive and the employee’s notice period has to be sufficiently long to make the garden leave worthwhile. But without these express provisions, employees could claim constructive dismissal if they are excluded from business operations and can show they need to work in order to preserve their skills. A valid claim could make the notice period and any restrictive covenants in their contracts void.
Garden leave may not be an attractive option for those who feel their ability to deliver for a new employer is prejudiced by them being kept out of the market. They could try to challenge garden leave by refusing to comply with it and starting work with a new employer. The old employer would then have to sue for damages, but it is often difficult to prove loss in these circumstances, or try to get an injunction to stop the employee from continuing in the new role. Courts will only enforce garden leave clauses to the extent necessary to protect the employer’s business. Consequently, an injunction for an employee’s full notice period is not always guaranteed.
Another problem with garden leave is its potential to be circumvented relatively easily. Once employees who resign are removed from the business, their work activities are less easy to monitor. There is a risk that they will participate in competitive activity and contribute to the new employer’s business, and this will be difficult to detect.
To address such concerns, garden leave clauses are often drafted to do more than just entitle the employer to exclude employees from its premises and not provide them with work. The relevant contractual provisions may explicitly reiterate the employee’s obligation not to work elsewhere and to continue to comply with duties of loyalty, fidelity, confidentiality and so on even though they have no active involvement in the business. The garden leave clause may also include an obligation to remain contactable throughout the period so they can deal with queries arising from their previous role.
Nonetheless, the risk of undetected breaches remains. Employers may try to counter this risk by having alternatives to garden leave, such as including clauses in the employment contract which allow them to vary the employee’s duties, rather than having them perform their normal role. Such provisions would enable the employer to keep an eye on employees’ activities, as they remain in the office on a day-to-day basis, but since the employees are removed from their normal role, they do not have the same access to confidential information, clients and so on. This may not be attractive in all circumstances, for example, if employees retain access to colleagues whom they might unsettle or try to poach, and there is still a risk of them becoming aware of the employer’s developing business plans. Also, it may not be possible to persuade executives to agree to giving the employer that level of flexibility in their contracts and they may even challenge the use of such clauses as a breach of the employer’s duty to maintain trust and confidence in them.
Key executives’ contracts should include garden leave provisions giving the employer maximum flexibility and protection in relation to their leaving the company. But, given the risk of undetected breaches, sending an executive home may not always be the best plan. Employers may want to consider whether the particular circumstances warrant keeping departing executives where it can see them.