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Garden Leave / Gardening Leave | December 9, 2011

In order to set out the law in relation to Garden Leave, I will start by providing a definition of Garden leave in the context of employment contracts. I will then go on to consider to what extent they are enforceable, dealing particularly when compared to the enforceability of restraint of trade clauses. Further I shall consider methods of enforcing garden leave clauses.

Smith & Thomas define gardening leave as a scenario where to protect a company from competition, where an employee is leaving who may possess sensitive commercial information and relationships with company clients, a clause in the employee’s contract obligates them to stay at home and not work for a very long period of time on full pay. Further they argue that the time period of Gardening leave varies between a 6 months to year long notice period and throughout this time there is an implied term that the employee will not work in competition or breach confidentiality.

The key case which sets out law dealing with the limitations on garden leave is William Hill Organisation Ltd v Tucker [1998] IRLR 313 it was held that in the absence of a contract provision prescribing a period of Garden leave where an employee benefits from doing the work professionally aside from economic benefits her receives. The court relied on the ratio in Turner v Sawdon & Co . [l90l] 2 KB 653 which was approved by the House of Lords in Herbert Clayton and Jack Waller Ltd v Oliver [l930] AC 209 in that the term “employ” needed to be given a flexible meaning on one hand provision of work would not necessarily have to be guaranteed. However on the other hand where the nature of the profession of the employee requires that he needs to be in work to progress his career, such as public displays from an actor, than, if work were not provided the employer would likely be in breach of the contract of employment.

There was a similar ratio in Langston v AUEW (No.2) [l974] ICR 5l0 at page 52l. and also Herbert Clayton and Jack Waller v Oliver [l930] A.C. 209 as regards theatrical performers, following the line of reasoning in Fechter v Montgomery (l863) 33 Beav. 22, Marbe v George Edwardes (Daly’s Theatre) Ltd [l928] l KB 269, Herbert Clayton and Jack Waller Ltd v Oliver [l930] AC 209, Driscoll v Australian RMSN Co . (l859) l F & F 458), Collier v Sunday Referee Publishing Co. Ltd [l940] 2 KB 647, Addis v Gramophone Co Ltd [l909] AC, Devonald v Rosser [l906] 2 KB 728 and Addis v Gramophone Co Ltd [l909] AC 488. The courts have not applied the same ratio where contracts have been indefinite for a fixed wage as evidenced in cases such as Turner v Sawdon & Co [l90l] 2 KB 653 and Collier v Sunday Referee Publishing Co. Ltd [l940] 2 KB 647.

Where the parties contract that an employer does not have to provide work, there is no obligation to provide work as held in Provident Financial Group v Hayward [l989] ICR l60. As regards obtaining injunctions to enforce garden leave clauses it was held in William Hill Organisation Ltd v Tucker [1998] IRLR 313 the court referred to Credit Suisse v Armstrong [l996] ICR 882, 892 in arguing that it was simpler to do than in relation to restraint of trade clauses.

It was held in Devonald v Rosser & Sons [l906] 2 K.B. 728 in addition to the money remuneration for doing work, there is an obligation that a reasonable amount or work be provided. However there is an exception to this as held in Turner v Sawdon & Co. [l90l] 2 K.B. 653 where there is no particular reason that consideration should consist of anything apart from pay.

Enforcement

In Evening Standard Co Ltd v Henderson [1987] ICR 588, [1987] IRLR 64 CA it was held that injunctions could be utilised to prevent employees breaching garden leave clauses. The court took into account in this case that there was a continuing relationship inclusive of trust and confidence and in this context it would be in the interests of justice to grant the injunction. There was a similar ratio in Euro Brokers Ltd v Rabey [1995] IRLR 206 regarding a money broker. There has also been support from this point of view from academics such as Smith, Thomas, Freedland and Gouldring.3 In Warner Bros, v. Nelson (1937) 1 K.B. 209 it was held that an employee could not be forced by way of injunction to continue working for an employer, however this was case was distinguished in Evening Standard Co Ltd v Henderson [1987] ICR 588 the issue was as to preventing the claimant from working for another party in the garden leave notice period. However where there is little evidence that an employer will suffer any detriment if an employee works for a competitor towards the end of a garden leave notice period, as held in Provident Financial Group plc v Hayward [1989] ICR 160, [1989] IRLR 84 an injunction will generally be refused in those circumstances.

However in Symbian Ltd v Christiensen [2001] IRLR 77 CA the following anti-competitive/confidentiality clause was construed to apply throughout the term of the contract which was deemed to include the gardening clause notice period. “shall not during the term of this Agreement (except as a representative of the Group or with the prior consent in writing of the Board such consent not to be unreasonably withheld) be directly or indirectly engaged or concerned or interested in any capacity in any trade business or occupation whatsoever other than the business of the Group whether or not competing in any material respect with the Business.” In Credit Suisse Asset Management Ltd v Armstrong [1996] ICR 882, [1996] IRLR 450 CA it was held that where there is a restraint of trade clause in addition to a gardening leave clause in a contract, they must be construed particularly reasonably.

Length

The length of a garden leave notice period also affects whether it will be enforceable or not. It was held in GFI Group Inc v Eaglestone [1994] IRLR 119 that a garden leave notice period of 20 weeks should be reduced to a more reasonable length of 13 weeks.

In Cantor Fitzgerald International v George [2002] IRLR 867 it was held employers should not impose excessive Garden leave notice periods in employment contracts.

Payment during Garden Leave notice period

It was held in Clark v Nomura International plc [2000] IRLR 766 that the payment during a Garden leave notice period should consist of all the money and other benefits the employee would have had he been working during the period of notice.

It was held in Fulham Football Club (1987) Ltd v Jean Tigana [2005] EWCA Civ 895, [2004] EWHC 2585 QB that the parities to a contract containing a garden leave clause can limit the contractual obligations of the employee.

In another football case it was held that Crystal Palace FC (2000) Ltd v Stephen Bruce[2001] that knowledge of contract negotiations could be a ground on which an employer could rely to justify a gardening leave clause so that a rival football club would not have access to sensitive information.

In Sendo Holdings plc (in administration) v Brogan [2005] EWHC 2040 (QB) it was held that companies in administration upon pre-empting a sale of the business were justified in enforcing garden-leave clauses, even when they had no immediate competitive interests to protect.

Relationship between Restraint of trade and Gardening leave clauses

In TFS Derivatives Ltd. v Morgan [2004] EWHC 3181 it was held by Justice Cox that the presence of a gardening leave clause did not necessarily mean there was no need for a restraint of trade clause.

Misconduct

As regards where an employee has been involved in misconduct in SG & R Valuation Service Co v. Boudrais & others, it was held [2008] EWHC 1340 (QB) that “In my judgment, therefore, the law is clear. Employees who have a right to work
have that right subject to the qualification that they have not, as a result of some
prior breach of contract or other duty, demonstrated in a serious way that they are
not ready or willing to work, or to put it another way, that they have not rendered it
impossible or reasonably impracticable for the employer to provide work. The
breach of contract or other duty must constitute wrongdoing, by reason of which
they will profit or potentially profit. In such circumstances, there is no obligation
on the employer to provide work, although the contract of employment is ongoing.
This is not an implied term in the employment contract but is a qualification to the
legal construct, the right to work.” Therefore in the absence of restraint of trade clause providing the above criteria are fulfilled an employer can send an employee home until their notice period expires. This ratio was followed in Gogay v. Hertfordshire CC [2000] IRLR 703 and also more recently in Standard Life Healthcare Ltd v. Gorman & others [2009] EWHC 791.

One can see that the case law in this area is very varied and that there are two broad categories of cases. On the one hand we have the cases where a gardening clause is not within the contract and on the other hand those where there is no gardening leave clause. What is clear is that an employee falls within an obligation to observe the reasonable terms of his contract and where there is no gardening leave clause the courts have been less inclined to impose an implied obligation. The scope of reasonableness in this context extends to the nature of any gardening leave clauses and particularly their length. It is clear the courts do not wish for clauses to be unreasonable and this trend of judicial interpretation appears to extend from the courts’ experience dealing with restraint of trade cases such as Herbert Morris Ltd v Saxelby [1916] 1 AC 688 and Allied Dunbar (Frank Weisinger) Ltd v Weisinger [1988] IRLR 60. With the Gardening leave option, although it may be expensive for employers in the short term as regards the remuneration at the same level as when the employee is at the work place, in the long term by protecting the commercial interests of the organisation, this may well be a small price to pay. However as we have seen above there are a number of limitations to the applicability of garden leave clauses. This is most notable where due to the nature of the employee’s profession unless they are continually working their skills may suffer. This means that even if a garden leave clause is present with a contract of employment, is may be null and void for invalidity. A practical option for an employer in that scenario would be to provide the employee with alternate work, in an environment, where the commercial interests of the company are not put at risk. This appears to be a simple solution, however it may not always be practical in the circumstances. Nevertheless it remains. As regards remedies, where an employee may leave an organisation in possession of commercial information, the damage caused to the company may be beyond immediate quantification. Arguably the provision of an injunction as a remedy provides a suitable method of enforcement. However this comes with its own limitations and an employer is faced with proving the grounds for the granting of an injunction pursuant to American Cyanamid Co v. Ethicon Ltd [2001] 1 WLR 194 in addition to those associated with providing justification for the argument that the gardening leave clause is reasonable. As we can see the case law with reference to Garden Leave is complex but enlightening.

Garden Leave Developed

The Law

The starting point is that employees owe duties to their employer of good faith and fidelity, not without reasonable and proper cause to act in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between them and the employer as held in Malik v Bank of Credit and Commerce International SA (in liquidation) [1998] AC 20 They also have a duty not to misuse confidential information.

Where employees are senior they have additional fiduciary responsibilities to their employers as held in University of Nottingham v Fishel [2000] ICR 1462. In order to protect the interests of the business in the absence of a gardening leave clause, it would be advisable for an employer to seek a prohibitory injunction. It was held in SG & R Valuation Service Co v. Boudrais & others applying William Hill Organisation Ltd v Tucker [1999] ICR 291, that where the defendants’ work is specialised and they have substantial professional abilities and occupy a senior position in the company it would not be appropriate to deny them work. In this case the applicable notice period was for three months and it was deemed due to their skills, too long a time to deprive them of work. Pursuant to cases such as William Hill Organisation Ltd v Tucker [1999] ICR 291 and Collier v Sunday Referee Publishing Co [1940] KB 647 where employees have been denied the right to work this may amount to a repudiatory breach of contract, in relation to which the employee may consider the employment contract ended. It was held in Miles v Wakefield Metropolitan Borough Council [1987] AC 539 that where employees are asserting a right to work they must demonstrate a readiness and willingness to work.

In SG & R Valuation Service Co v. Boudrais & others it was held that Employers are also under an obligation as set out by Harvey on Industrial Relations and Employment Law. At paragraph [563]-[570] and as held in Langston v Amalgamated Union of Engineering Workers [1974] ICR 180 to not “unreasonably withhold work when there is work available to be done”.

Further in SG & R Valuation Service Co v. Boudrais & others4 it was held applying Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch 227 that where an employee has committed an act of misconduct, their right to work may not be practicably applied and therefore this right may not be available to them in that context. The misconduct should amount to a breach of contract for this exception to apply where a right to work has been determined. It was held that “ the first and second defendants, in my judgment, remain employed by the claimant. Until the notice period elapses they therefore remain subject to continuing contractual and other duties. In keeping them away from work there has been no repudiatory breach by the claimant for the first and second defendants to accept, as they purported to do in the letter of their lawyers of 16th April. There was reasonable and proper cause for the claimant to make its demand that they remain at home.”

As regards the mutuality of obligation and the sequence of mutual repudiatory breaches having considered RDF Media Group plc v Clements [2007] EWHC 2892; [2008] IRLR 207, Bremer Vulcan Schiffbau und Maschinenfabrik v South India Shipping Corp [1981] AC 909 and Paal Wilson v Partenreederei Hannah Blumenthal [1983] 1 AC 854 in SG & R Valuation Service Co v. Boudrais & others it was held that in the particular circumstance sequential breaches had occurred therefore, unlike the distinguishing features in the above cases, an employee would be able to choose a particular repudiatory breach of the employer to rely, however this would not have been the case had the employee been responsible for destroying the mutual trust and confidence in the first place.

In SG & R Valuation Service Co v. Boudrais & others it was held that an employer can be entitled to springboard relief. The term Springboard as discussed in Roger Bullivant Ltd v Ellis [1987] ICR 464 refers to the ability of employees in possession of confidential information to make a greater effective use of the information potentially detrimentally to a claimant, which may not be possible if an injunction was granted to prevent them acting on the basis of the confidential information. As held in Midas IT Services v Opus Portfolio Ltd 21st December 1999, springboard relief is a remedy which enables an employer “to deprive wrongdoers of the fruits of their breach of duty and to restore the position to before the wrongdoing”. However this type of relief will not be available where the confidential information has been handed back to an employer.

On the basis as held in Provident Group plc v Hayward [1989] ICR 160 where a period of notice is not excessive, employers are entitled to rely on the notice clause in an employment contract. Another feature which should not be present is that the application of the notice clause amount to restraint of trade or generally anti-competitive nor anything more radical than the purpose of the notice clause, requiring employees to work out the duration of the notice period that they contracted to do.

It was also held in this case that where “The defendants are protected by the undertakings to pay their salaries and the cross-undertakings as to damages. There can be no legitimate expectation that the defendants would have had work during the notice period.” This being in the context that the defendants’ behaviour in this case in appropriating confidential information and having formed an intention whilst working for the Claimant to set up in competition against them, they could not expect to work out there notice period, where they would have had access to commercial information which would aid them in their industrial espionage campaign. Finally it was held that “The claimant should not be expected to lose the benefit of the notice period and the sterilisation of the defendants’ activity during that period.” Here we can see that the aim of this statement was to protect the employer. The law is very clear on the matter as regards the effect of misconduct determining whether an employee is entitled to come and do work in the employer’s property during the notice period.


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