Cultivating the best terms for garden leave
Employers often include “garden leave” provisions in their contracts of employment as a means of protecting their business when faced with the imminent departure of a key or senior employee. The clause allows the employer to direct the staff member to work out their notice period “at home”, thereby keeping them away from the business for a period of time, while at the same time delaying the commencement of the person’s employment with their new boss.
During a period of gardening leave, an employee is usually contractually prohibited from performing any part of their usual role. This includes not contacting clients or customers, not contacting colleagues in a work capacity, and not holding themselves out as a representative of their employer. The employee will usually be prevented from accessing the IT systems and will likely have their laptop and mobile telephone taken away, together with building security passes.
It is common, however, for an employer to require an employee on garden leave to engage in handover activities. They may also be required to attend the office under supervision in order to perform final tasks.
It is reasonable to require a staff member to remain contactable and generally fit and ready for work during the entire gardening-leave period so that they can be contacted and be able to perform tasks for the employer if necessary
Requiring an employee to be absent from the business – especially in circumstances where they are moving to a competitor – allows the employer to take action and make changes of which the person is not aware. Any valuable knowledge they had about the business when they resigned may no longer be current when they start work with the new employer, thereby decreasing their ability to harm their former boss’s business. Their absence also allows the employer to take steps to secure relationships with any clients or co-workers who may have been tempted to move with them.
Because an employee remains employed during garden leave, they remain bound by restrictions on behaviour contained in, or arising from, their contract. They are required to continue to act with fidelity, good faith, trust and confidence towards the employer, and to not misuse confidential information. If they breach any of these obligations, the employer can still take action against them for breach of contract or dismiss them if the circumstances warrant it. The employee’s absence from the office, and their exclusion from telephone and IT systems, also gives them less chance to entice away colleagues and clients.
Although both garden-leave provisions and post-employment restraint clauses operate to achieve similar aims, courts are more likely to enforce garden-leave clauses which are reasonable in length than post-employment restraints limiting an employee’s ability to accept a new job. This is because the employee remains employed and paid during garden leave and so suffers less of a disadvantage than a staff member who is prevented from accepting new employment after termination.
The Practical Considerations
Whilst garden leave can be an effective tool to protect an employer from harm caused by an exiting employee, prudent bosses should still exercise caution in its use.
Given the costs involved of paying salary and benefits during garden leave, employers should carefully consider and identify the types of roles that truly warrant such a clause. Senior executives, key technical staff and those likely to have a strong client base or access to commercially sensitive information are likely candidates.
The employee’s contract must include an express garden-leave clause permitting the employer to withdraw their duties and exclude them from the premises during their notice period. In the absence of a clause to this effect, it may not be possible to put an employee on garden leave without their consent, and the employee could argue that being put on garden leave constitutes a constructive dismissal by the employer.
Hong Kong employers should also be mindful that the Employment Ordinance permits staff to “buy out” their notice period by making a payment in lieu of part or all of the notice period. This means that it is open for employees entirely to circumvent the garden-leave provisions contained in their employment contract if they wish to do so.
Garden-leave provisions must therefore be combined with reasonable, enforceable post-employment restraint provisions. If a staff member buys out their notice period, their employer then has options to stop them immediately starting work with a rival. Where both garden leave provisions and post-employment restraints are used in a contract of employment, it is advisable to offset the duration of the post-employment restraints by any period spent on garden leave so as to ensure the terms of the restraint are reasonable and enforceable.
Herbert Smith Freehills has 2,800 lawyers and 460 partners in over 20 offices globally. It advises on dispute resolution and employment, among other areas.
Gareth Thomas is head of the Hong Kong commercial litigation team and responsible for the Greater China employment practice.
Helen Beech is a senior member of the Hong Kong employment practice and has a wide range of experience in employment matters.
The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.