Garden leave to the fore when new laws curb non-competes

As we reported last month, the government has now published its response to its consultation on measures to reform post-termination non-compete clauses. It plans to introduce a new 3-month cap on the duration of non-compete clauses in contracts of employment and the contracts of so-called ‘limb b’ workers. Importantly, however, the government has no plans to stop employers utilising other ways to protect the business – so what are those ‘other ways’?

The options – which are untouched by the government’s reforms – are a range of commonly used devices used by employers including non-solicitation clauses (which limit an ex-employee’s ability to poach clients or staff), non-dealing clauses (which limit an ex-employee’s ability to deal with previous clients), paid notice periods, confidentiality clauses and garden leave. Going forward, all of those will, in our view, be relied upon more and, as Ed Goodwyn told this programme last month, especially garden leave.

A reminder. Putting an employee on 'garden leave' means the employer sending the employee home on full pay during the employee's notice period. It can be done when an employee resigns or when the employee is dismissed with notice. Unlike post-termination covenants such as non-compete clauses, the employee remains employed by the employer and, therefore, subject to the express and implied terms and conditions of their employment contract. For that reason, garden leave clauses are often written into employment contracts, particularly those of senior employees. 

So, let’s consider that. Earlier Emma Johnston joined me by phone from Edinburgh to discuss it:

Emma Johnston: “One thing that we tend to advise clients that can be used as a useful alternative is to rely more heavily on a garden leave clause. So, if you have someone senior with potentially a six or 12-month notice period, it may be more useful and effective for the employer to put that individual in the garden for six months, or 12 months, because effectively they're not able to get another job, they’ve not got access to confidential information and using their skills and so, actually, that's a more effective way of dealing with it and keeping them out of the market and preventing the need to have this argument around non-compete enforceability.”

Joe Glavina: “And, of course, if the employee is on garden leave it means they remain an employee so subject to all the terms and conditions of their contract of employment.”

Emma Johnston: “Exactly. So effectively, because the individual remains in employment with the current employer, they have various duties of good faith. They are not usually, according to their contract, entitled to get another job and there are various restrictions as part of garden leave, usually, involving them not doing any work and not contacting their clients or colleagues and so you really can have a significant amount of control over what that individual does during that period, if anything. It means that they are not using their skills, they're not refreshing their confidential information that they have access to and, actually, it works just as well as having them sitting at home as part of a non-compete restriction and not working for a competitor.”

Joe Glavina: “Can I ask you about the drafting of these garden leave clauses, Emma. Are you relying on something drafted some time ago when the individual signed up and joined the business?”

Emma Johnston: “Quite often it's just reliance on a garden leave clause which is included in the  contract and when you're dealing with senior employees, these clauses really are of fundamental importance and it can be really useful, not only to set out that the employer is entitled to put the individual on garden leave for up to all of their notice period, but also include various restrictions in addition to that. For example, not accessing particular systems, or not contacting colleagues without permission, not accessing the workplace, and so on. All of these restrictions can help an employer limit the damage that could be done if that individual then moves on to a competitor.”

Joe Glavina: “Is there a risk that a garden leave clause could be too wide, Emma. After all, the individual is in the garden, not working, not exercising their skills for some time which might impact their future job prospects.”

Emma Johnston: “It’s certainly not something that tends to be as contentious as the drafting of a non-compete restriction, for example. A garden leave clause will, at the most, just mirror the extent of the notice period and so, quite often, individuals are relatively happy to be sitting at home for a six or 12 month period being paid their full pay and quite often there will need to be a determination by the employer as to whether that is basic pay or whether they benefit from all the various additional benefits in addition to that, so that has to be hammered out as part of the contract. But, generally speaking, these garden leave clauses are fairly standard. They're not often challenged insofar as you are just sticking to the standard requirements of a garden leave clause that just relates to the notice period and the standard expectation which is that they don't do any work and often aren't allowed to access the workplace or contact colleagues without permission.”

Joe Glavina: “Final point, Emma is given the restrictions that the government is going to be bringing in, and we think that is going to be a cap of 3 months, presumably, going forward, it means garden leave clauses are going to become even more important?” 

Emma Johnston: “Absolutely, and this is something that we've said to clients for quite some time now, actually, just to avoid that argument about enforceability, and so on. It may be that, actually, you can use them in conjunction with each other. So, often, what you might find then is if you have an employee in the garden for six months which is, say, the full extent of their notice period, then any non-compete restriction, in order to be considered reasonable and not go beyond what is necessary, will automatically be reduced to reflect that period that the employee has been in the garden. We see that in the drafting a lot, and that is appropriate. So, effectively, even if there was a three-month non-compete restriction, if the employee had been in the garden for the same amount of time as that restricted period, or more, then that non-compete would therefore not be enforceable thereafter.”

We mentioned earlier the programme we made following publication of the government’s response to its consultation on non-competes. That’s ‘Non-compete clauses to be capped at 3 months’ and is available for viewing now from the Out-Law website. We have put a link to it in the transcript of this programme.

LINKS
- Response to the government consultation on measures to reform post-termination non-compete clauses in contracts of employment
- Link to HRNews programme: ‘Non-compete clauses to be capped at 3 months’