In one’s darker moments at work the prospect of 12 months’ compulsory paid leave sounds like the way to go. In reality, the damage done to your name, skills and client connections could be very substantial. How could the employer ever justify that requirement?
In JM Finn & Co Ltd v Holliday the High Court this month granted an investment management firm an injunction to enforce the 12-month notice period of a departing employee, Mr Holliday. The Court granted the injunction on the basis that 12 months was no more than was reasonably necessary to protect JM Finn’s legitimate business interest in its client connections and could therefore be justified under the restraint of trade doctrine.
Mr Holliday had sought to argue that his departure was not as it appeared, i.e. a move to a more lucrative position elsewhere, but was in fact the product of his alleged constructive dismissal through JM Finn’s refusal to provide him with a daily briefing note about the market. He described these notes as “vital and necessary” to the maintenance of his skills, evidence which the Judge in turn described as significantly over-egged.
The constructive dismissal argument is a tactic regularly deployed by departing employees with the aim of freeing themselves from their ongoing contractual obligations to their existing employer by way of notice periods and/or restrictive covenants – the brokers in the Tullet Prebon case also tried unsuccessfully to play this card. Holliday underlines again that the High Court will not find lightly that an employer has acted in a manner calculated to destroy the employment relationship without solid evidence. Here, in addition to the description in the title, the Judge commented rather acerbically that Holliday was “very ready to make assertions with great conviction that were not true”, perhaps not the most glowing of testimonials for a stockbroker. Whilst the Judge was obviously influenced by the finding that Holliday was not the most reliable witness, the decision whether to enforce the full 12 month period of garden leave nonetheless had to be reached following a thorough weighing-up of the parties’ respective interests. The Judgment gives a helpful reminder of the principles a Court will apply when determining the period for which a garden leave clause will be enforced.
Key points on duration – for how long can an employee be placed on garden leave?
The Judge followed the approach taken to duration in Tullett Prebon. She highlighted the stark difference between the approach to garden leave, where the Court has the discretion to “whittle down” the protected period, and to post-termination restraints where the clause must be enforceable as it stands or it fails entirely and there are no points for a “near miss”. In practice this means that a 12 month garden leave clause can be upheld for a period of 9 or 6 months or such period as the Court feels is necessary to protect client relationships, etc., but a post termination restraint which is too long cannot be “saved” in this way.
The English Court will decide on the total period of protection that is appropriate. If garden leave alone will not serve as adequate protection for the business, the Court will consider any post-termination restrictions and will reach the total period of protection it deems appropriate by way of the post termination restraint for the full duration less an offset for any period of garden leave considered to be appropriate.
Practical tips for employers on garden leave clauses
- Ensure contracts contain an express garden leave provision which reminds employees that during any period of garden leave their contractual obligations continue to apply. Though there is a price to pay in the form of the employee’s ongoing salary and benefits, such clauses are wider in their possible scope and far more easily enforced than post-termination covenants.
- Remember to take reasonable steps to ensure that individuals have access to training during long garden leave periods. The individual’s ability to keep his skills up to date is a point the Court may consider in balancing the individual and the company’s needs.
- When drafting service contracts, remember that it is safest to include an offset clause for garden leave in the post termination restraints. Whilst there is case law to the effect that failure to take account of the possibility of garden leave will not render a restraint unenforceable because the necessary adjustment is effectively built in by law, doing so remains the safest course of action.
- As always, one size does not fit all. Multinational employers in particular should be aware that garden leave clauses are not enforceable in all jurisdictions. A Russian Court, for example, would not be likely to uphold a garden leave clause at all and in the US employers will have a much harder job persuading a Court of their enforceability in some states than in others. Employers should ensure a joined-up global strategy is adopted in relation to employee restriction via garden leave and/or post termination restraints, particularly for senior and/or globally mobile employees who may have rights and obligations governed by more than one jurisdiction.