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Holiday & Leave


ALLEN & OVERY
Article exclusively contributed by
Allen & Overy

Garden leave


"Garden leave" occurs when an employer requires an employee, who has either been given notice or, more commonly, has resigned, to serve all or part of his notice period away from the workplace by staying at home or "in the garden".

During garden leave, the employee is still subject to normal terms and conditions of employment and continues to receive salary and benefits.

In the UK, the employer's ability to send employees on garden leave has been tested in the courts. In William Hill Organisation Ltd v Tucker (1998), Mr Tucker was employed as a senior trader in William Hill's spreadbetting business. He gave notice and announced that he intended to join a competitor within one month. Although his employment contract required him to give six months' notice, it did not clearly state that William Hill had the right to put him on garden leave.

The court refused to order Mr Tucker to remain on garden leave or to restrain him from joining a competitor. The Court of Appeal concluded that, in the absence of a clause in the contract allowing such garden leave and because the employment relationship concerned a senior employee with unique skills which required continued use to prevent them from withering and, as a result, limiting their future effectiveness, William Hill did not have the right to place Mr Tucker on garden leave.

In Credit Suisse Asset Management Ltd v Armstrong (1996), Mr Armstrong and a number of colleagues resigned and Credit Suisse placed them on garden leave, according to a clause in the staff handbook.

When it was discovered that they were joining a competitor, Credit Suisse applied for a court order to restrain them from doing this. The Court of Appeal decided that the post-employment restrictions contained in the contract (known as "restrictive covenants") and the garden leave provision were valid. The employees then argued that time spent on garden leave should be deducted from the restriction period. However, their contracts did not include a provision that offset time spent on garden leave against the overall length of the restrictive covenant. The Court of Appeal rejected their argument.

It is believed that these common law principles equally apply in Hong Kong, especially as local case law does not cover this subject directly.

Hong Kong employment law is, however, unique as both the employer and the employee can lawfully terminate an employment contract by making a payment in lieu of the wages that would otherwise be payable during the notice period.

As a result, the court is unlikely to make a court order that ties down an employee during a period of garden leave, once the employee has agreed to make a payment in lieu of notice. In Hong Kong, to a certain extent, garden leave is therefore a less powerful tool to prevent an employee from joining a competitor.

Q1 Why are employers keen to impose garden leave on employees?
A1 Placing an employee who intends to join a competitor on garden leave has several advantages for the employer:
- By temporarily delaying his arrival at the competitor, existing business relationships can be secured;
- The "shelf life" of current confidential information known to the employee will be reduced;
- The employee is not allowed to compete with the employer during his garden leave.

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.

Q3 As an employee, what are my rights and obligations during garden leave?
A3 The employee is still entitled to his full remuneration and benefits package throughout garden leave. However, he is no longer entitled to go to work, enter the office or contact clients, suppliers or other business associates and is not allowed to start working for another employer.

Q4 Apart from garden leave, is there any other way to stop an employee competing with his former employer?
A4 In order to protect the employer's business interests, an employee's contract can include restrictive covenants such as non-competition, non-solicitation of business and/or non-solicitation of employees' provisions. However, the court will consider the circumstances, the parties' bargaining positions and the employee's seniority before deciding if these can be enforced. Restrictive covenants must also be no more than reasonably necessary to protect the employer's business interests, such as confidential information or customer and staff connections. In addition, geographical coverage, duration and the scope of the activities being restrained affect what is considered to be "reasonable". To date, the maximum restriction time approved by the Hong Kong courts is one year, although this does not apply to solicitors.


Taken from Career Times 11 April 2003

(Last review date: 23 August 2013)


Disclaimer: The opinions expressed in this article are those of the contributor.

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