Garden leave (also referred to as gardening leave) is when an employee has resigned, or been put under notice that the employment contract is going to terminate, and is asked not to attend work. The employee remains on the payroll.
It is important to note that garden leave only describes the situation during a notice period. If the employer wanted to ask the employee not to attend work for some other reason (e.g. whilst an investigation is being carried out into an allegation of gross misconduct) the employee will be suspended, rather than being on garden leave.
An employer typically uses garden leave when it does not want to end the employment of an employee early, but has a good reason for not wanting the employee to be at work.
This could be because it is feared that the employee is going to be disruptive. For example, if an employee is under notice of dismissal it could be feared that the employee will make negative comments about the organisation to customers.
It could be appropriate to use garden leave to delay the employee going to a new employer. This could be particularly useful if the employee is going to work for a competitor, and there is no restrictive covenant in the contract of employment to stop the employee doing this. If the employee, for example, is on garden leave for a notice period of three months this means that there are three months without the employee gaining further knowledge of the employer’s products, services and activities.
There is an implied term in the contract of employment that the employer will provide work, and the employee will do work. By asking the employee to remain at home the employer is breaching the implied duty to provide work. Increasingly, the Courts are seeing the approach as a breach of contract.
However, there is no breach of contract if there is a specific clause in the contract of employment which gives the employer the right to put an employee on garden leave if notice of the termination of the contract is given by either party. As it is not always possible to predict when and if a garden leave period will be needed it is recommended that a clause allowing this is routinely included in all contracts of employment.
The contract of employment continues without change, apart from the requirement to work, during the period of garden leave.
Specifically, this means that the employee’s continuity of service continues to accrue, as does the right to all terms and conditions set out in the contract of employment. The employee will continue to accrue annual leave. If the employer has a contractual right to insist that annual leave is taken during the notice period this can be imposed.
If there is no such contractual right the employee cannot be forced to take any of the garden leave period as annual leave.
The obligations on the employee continue during garden leave. These include duties relating to issues such as confidentiality, and the implied duty of faithfulness to the employer. If the employee was found to have done something which breached these duties (e.g. divulging confidential information to the employer the employee is going to join) the existing employer could take disciplinary action, which could include dismissal.
The effective date of termination is the date that the garden leave period ends. Accrued holiday entitlement, and any associated payments, should be calculated from this date.
If there are any restrictive covenants in the contract of employment which last for a specified time from the end of employment they will apply from the date that the garden leave period ends.
If an employee is entitled to a bonus which relates to company or team performance this should be paid in the same way as for all employees.
If an employee’s remuneration is partly made up of bonuses or commission that are based on individual performance then the employee will be disadvantaged by being on garden leave, because the opportunity to perform and hence earn the bonus or commission has been taken away. In this situation an average of earnings over the previous 13 weeks should be calculated, and this amount should be paid during garden leave.
If the employer does not want the employee to work once notice of termination has been given or received the other option is to end the employment immediately and to pay the employee in lieu of notice, i.e. pay the employee an amount equal to that which would have been earned if the employee had been employed for their full period of notice.
This approach can only be used if there is a specific contractual clause allowing the employer to pay in lieu of notice.