Employers may find themselves in a financially onerous position if correct procedures aren’t followed when placing staff on “garden leave” – it’s not always as straight forward as it seems. It’s best to know the do’s and don’ts in this situation before going down the garden leave path.

It is increasingly common practice for employers to direct an employee to take so called “garden leave” after an employee has given notice of termination of employment. Whilst on garden leave, the employee is required not to attend the workplace or perform duties but remains on full remuneration. This is useful to the employer where the employee has resigned to take up employment with a competitor.

Going down the wrong path

In the recent case of Actrol Parts Pty Ltd v Coppi (No.2) [2015] VSC 694, the Victorian Supreme Court confirmed the legality of this practice and made some interesting comments about the increasing use of garden leave.

In this case, the employee gave the employer four weeks’ notice of resignation to take up employment with a competitor, and commenced employment with that competitor half way through the notice period. The employer discovered this on the former employee’s second day of employment at the new competitor, and obtained a search order executed at the former employee’s home where a number of computers and like devices were found and taken away.

At the trial of the action for nominal damages only, the employer alleged that the former employee had breached his contract of employment by commencing work for a competitor when he remained an employee of the employer until his notice of resignation expired. The employee contended that by placing him on garden leave and taking away his company provided motor vehicle, his former employer fundamentally breached and repudiated the contract, thereby leaving him free (by way of acceptance of that repudiation) to commence new employment.

The Court held

  • An employer can only direct an employee to take garden leave where the contract expressly or impliedly so provides
  • In the absence of express contractual provision, the court will imply a garden leave provision for the duration of a resignation notice period, but not otherwise
  • The employer must maintain all of the employee’s remuneration and entitlements during the notice period to qualify as garden leave.

The Decision

The requirement for the employee to deliver up his fully maintained company car when directed to take garden leave for his notice period constituted a repudiation of the contact of employment by the employer. This was because the fully maintained company car was part of his remuneration package rather than required for the performance of his duties (ie as a tool of trade).

Accordingly, the contract of employment came to an end on the second day of the former employee’s employment with the competitor because on that day the former employee communicated his acceptance of his former employer’s repudiation of the contract of employment. This left the employee free to take up new employment with the competitor without serving the balance of his notice period and the employer likely to be liable for a significant costs order.

Important Tips

  • DO revise and amend all employment contracts inserting an express power to put an employee on garden leave during any notice period or at any time at all.
  • DON’T reduce or remove any remuneration or benefits payable to the employee when directing an employee to take garden leave

About the Author

Tim Greenall

Special Counsel
Commercially savvy with over 30 years of experience, Tim provides pragmatic employment advice to his clients.

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