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Garden leave - Writing Up The Agreement

First, the business needs to decide if a garden leave is a suitable tool. Suitable meaning that it makes economic sense.

Second, the employment contract needs a specific clause that expressly provides for the garden leave. I find support for this in reading A Breach of Contract? by Kate Payne.

Effective Garden Leave -

• Include express provision in the Contract of Employment, providing for garden leave and expressly exclude any obligation on the employer to provide work to the employee. Also include an express obligation on the employee not to work for anyone else during the notice period.
• Make sure the garden leave lasts no longer than is necessary to protect the legitimate business interests of the employer - the Courts are not shy of intervening to reduce the notice period or, more seriously, invalidate the right altogether.
• Team departures - junior brokers and underwriters will often have a shorter notice period than their senior colleagues. Attempts to keep the senior colleagues on garden leave once the more junior ones have started their new jobs with the competitor are likely to fail as the damage to the employers business will already have been done.
• Full salary and benefits must be paid throughout the period of garden leave. Failure to do so will amount to breach of contract by the employer and both the garden leave obligation and any restrictive covenants will be unenforceable.

The Key Issues

• Employers should give thought to continuing to provide non-obligatory bonus benefits throughout the period of garden leave, such as discretionary bonuses, to help counter any claim by the departing employee that their financial interests have been unfairly prejudiced - this is particularly advisable where they form a major part of the employee's package.
• Be cautious in the wording of staff handbooks or training manuals. In the recent Court of Appeal decision William Hill -v- Tucker [1998] the Court considered that the statement in a training manual that the employer was "prepared to invest in its staff to ensure that they have every opportunity to develop their skills" was incompatible with the concept of garden leave.
• Payments made by an employer in respect of the garden leave period may be paid to the employee in the usual way or as a lump sum. However, in either case the payment is taxable.

Requiring a writing for the garden leave seems well established in those jurisdictions with ere they are being used. See Garden leave describes the rule in Hong Kong:

Q2 Can I send an employee on garden leave if his employment contract does not contain a specific clause allowing me to do this?
A2 You cannot be certain that you can place an employee on garden leave unless the employment contract clearly states that you have the power to do so.Indiana law requires the same thing in a non-compete agreement. I cannot imagine Indiana courts upholding an oral garden leave agreement.

You can find an English example here.

Hong Kong's Career Times writes on the importance of good drafting - in terms of English common law - in its Factors in drafting an effective garden leave clause:

"What risks are there for the employer if the clause is not properly drafted?

A4 According to the decision in Symbian Limited v Christensen, placing an employee on garden leave effectively terminates the employment relationship but not the contractual relationship. Hence, a departing employee may take up employment elsewhere during the period unless this is expressly forbidden in the contract. Thus, the extent to which a departing employee is free to compete during the garden leave period will depend on how carefully the terms of the employment contract are drafted."

Full post as published by Indiana Civil & Business Lawyer on January 22, 2010 (boomark / email).