In order to make a garden leave effective, employers should ensure that the employment contracts, especially those for senior and skilled employees, contain, among other things, the following :-

Ø   The employer has no duty to provide the employee with work;

Ø   The employer has the power to withdraw duties and exclude the employee from the workplace during the notice period; and

Ø   The employee shall not do other work during the term of his employment.

What is Garden Leave?

“Garden Leave” refers to the situation where an employee, who has either been given notice or, more commonly, has resigned, is required by his employer to serve all or part of his notice period away from the workplace by staying at home (or “in the garden”).  During the garden leave period, the departing employee remains a paid employee and cannot act against the interests of the employer.

It is generally considered that placing a departing employee on garden leave has the advantages of delaying the departing employee’s arrival at the competitor, prohibiting the departing employee from soliciting existing clients or co-workers, and preventing the departing employee from acquiring confidential information and trade secrets of the employer.

Enforcement of Garden Leave Provision

In the English case William Hill Organisation v Tucker [1998] IRLR 313, the Court was invited to consider the enforceability of garden leave provision.  The Defendant was employed as a senior dealer in the Plaintiff’s spread betting business.  Although the employment contract required the Defendant to give six months’ notice, the Defendant purported to give notice and announce that he intended to join a competitor within one month.  In the absence of a garden leave provision in the employment contract, the Plaintiff decided to put the Defendant on garden leave and applied to the Court for an injunction restraining the Defendant from entering into employment with the competitor for the remainder of the notice period.

The Court of Appeal held that whether an employer may put a departing employee on garden leave depends on the terms of the employment contract, in particular :-

1)        If there is an express garden leave provision, an employer may put a departing employee on garden leave and it is enforceable at law;

2)        If the employment contract is silent on this issue, garden leave will be enforceable provided that there is no contractual obligation on the employer to provide work with the departing employee.  Whether there is such an obligation is a question of construction of the particular employment contract.   Generally, there will be no obligation to provide work save and except where :-

(a)      the departing employee occupies a specific and unique post;

(b)      the departing employee has particular skills or talent which require regular exercise; or

(c)       the departing employee’s remuneration depends on work being performed.

In the light of the fact that the Defendant’s post as a senior dealer was specific and unique, and the skills necessary to the proper discharge of its duties required their frequent exercise, the Court of Appeal concluded that in the absence of an express or implied garden leave provision, the Plaintiff had a duty to provide the Defendant with work and cannot insist on putting the Defendant on garden leave during the notice period.

Remedies

When a departing employee breaches an express garden leave provision, the employer may seek an injunction to enforce the terms of the employment contract and/or seek monetary damages for loss suffered as a result of the breach.  However, in the English case Symbian Limited v Christensen [2001] IRLR 77, the Court of Appeal held that during a garden leave period, a departing employee owes no duty of fidelity and good faith to his employer.  Hence, unless the terms of the employment contract expressly prohibit the departing employee from doing other work during his employment, he may enter into employment with a competitor during the period.  Thus, the extent to which a departing employee is free to compete during a garden leave period will depend on how carefully the terms of employment contract are drafted.

The Legal Position in Hong Kong

Although these decisions are not strictly binding in Hong Kong, it is believed that local courts are likely to adopt these common law principles.  In Hong Kong, however, section 7 of the Employment Ordinance allows a departing employee to lawfully terminate his employment contract by making a payment in lieu of notice.  This statutory right cannot be overridden by any contractual terms, including a garden leave provision.  As a result, once a departing employee agrees to make a payment in lieu of notice, it is unlikely for the Court to make an order that ties him down during a garden leave period.  Garden leave provision is therefore a less powerful tool to protect an employer’s interests against a departing employee.

That being said, employment contracts, especially those for senior and skilled employees, should always contain a properly drafted express garden leave provision supplemented by post-employment restrictive covenants, such as non-competition, non-solicitation of business and/or non-solicitation of employee’s provisions.  This will at least keep the employer’s options open and preclude any argument that garden leave is not permitted.