Many employers and employees do not know what “gardening leave” is, let alone whether employees can be forced to take gardening leave when their employment ends in Victoria.
We all know that employment contracts allow both employers and employees to terminate employment by giving notice. The amount of notice is normally set out in the employment contract and must at least meet the statutory minimums in the Fair Work Act (Cth) 2009.
But what are the employer’s options when the employment is terminated?
- The employer can elect for the employee to work out the notice period paying the usual salary, superannuation and providing all other contractual and statutory benefits and entitlements.
- Alternatively, the employer may choose to terminate the employment in lieu of notice. This means that the employment ends immediately and the employer is, on that day, obliged to pay the employee all of their entitlements to the end of the notice period. In this scenario, the employee does not come back to work and, subject to any restraint clauses in the employment contract, they are free to go out and take up new employment the next day.
- However, there is a third option referred to as “gardening leave” which is increasingly being adopted by employers in Victoria. Instead of working through the notice period or being terminated in lieu of notice, the employee is directed not to come back to work but to remain at home for the duration of the notice period. The employer then continues to pay the employee as usual to the end of the period but the employee is prevented from taking up employment with a competitor during the notice period.
The benefit of the garden leave option is that it enables an employer to keep departing employees away from confidential information and from competitors for the duration of the notice period. In some cases, a gardening leave provision in an employment agreement will be a more effective tool for preventing an employee from quickly joining a competitor than a restraint of trade clause. The gardening leave option does not have the interpretation and enforceability/litigation problems which are often associated with restraint of trade clauses.
However, an employer must be careful to properly implement the gardening leave option to avoid a claim for “constructively dismissal”. Gardening leave may be inappropriate in circumstances where a senior executive has a specific skill set or reputation which needs to be constantly maintained. Further, the employer must be careful to fully honour the employee’s remuneration package during the gardening leave period including the provision of cars, laptops and mobile telephones. If the employment contract is breached during the gardening leave period, then a finding of constructive dismissal or repudiation of the employment contract against the employer can result in a significant damages claim against the employer. Further, a repudiation of the employment agreement by the employer may also release the employee from the employment contract including any obligations as to confidentiality and restraint of trade.
The best way for an employer and employee to understand their obligations upon termination is to ensure that the employment agreement has properly drafted termination provisions including an option for gardening leave, where appropriate. However, even where a contract does not include a gardening leave clause, the courts have now, in some Victorian cases, found that “gardening leave” is an implied term of most employment contracts. In other words, the employer may have an implied (or unwritten) right to impose gardening leave on the employee even where this is not specifically set out in the employment contract.
It is important to receive proper legal advice on this issue. We would certainly recommend that employment agreements, particularly with senior level employees with access to the employer’s confidential information, always include a gardening leave option exercisable by the employer.
Hendersons Legal can assist at all stages including drafting or reviewing employment contracts, advising before and after an employee resigns or is terminated and in negotiating where disputes arise. Hendersons Legal has a significant amount of experience in this area having assisted both employers and employees through the process over many years. Call us on 03 9629 2211 to speak to a qualified lawyer about your legal concerns now.
This content is intended as commentary and should not be construed as legal advice.
For more information call Melissa Henderson on 03 9629 2211.