Gardening leave describes a situation where an employee gives notice or is given notice of termination of employment and is directed to stay away from work for the duration of the notice period, whilst continuing to pay the employee’s remuneration.
However you need to ensure you have the right to put an employee on gardening leave. If you don’t have that right and act as if you do, the employee could treat him or herself as being constructively dismissed. The effect of the wrongful dismissal will expose you to a damages claim for breach of employment contract and may also relieve the employee of post-employment obligations such as restraints of trade.
The Victorian Supreme Court had to determine these questions in Actrol Parts Pty Ltd v Coppi (No 2)  VSC 694 (9 December 2015). The case concerned an employee who had been placed on gardening leave following his resignation. During the gardening leave the employee joined a competitor. Ordinarily this would be a breach of the employment contract by the employee. However in his defence, the employee argued the employer did not have the right to place him on gardening leave and by doing so it was repudiating his employment contract i.e. in effect tearing it up, entitling the employee to in turn “accept’ the repudiation bringing it to an end.
In this case, the contract of employment did not contain any written provision entitling the employer to place the employee on gardening leave.
The Court considered whether the term entitling the employer to place the employee on gardening leave following his resignation was an implied term i.e. treated as in the contract because it was necessary to make the contract work and the parties would have, at the outset of making the contract, regarded the inclusion of such term as normal.
The employer argued to imply such a power would be inconsistent with the managerial nature of the employee’s position. However the Court ruled it was reasonable and equitable to imply the term.
This was because the employee was a sales manager with direct responsibility for sales representatives within a territory, and it was reasonable for the employer not to want him to perform actual work during the period of resignation notice, especially as the company had reason to think he would go to work with a competitor. The term would be equitable so long as the employee’s remuneration and entitlements were to be maintained and the period was short (only a few weeks) and connected with his resignation. The Court determined that the fact the employee might receive a little less by way of bonus payments during this period is not sufficient to warrant a different conclusion.
According to the Court, the term would be necessary to give business efficacy to the contract because, without it, the employer would have to maintain the employee in a position where he would have continuing contact with its sales representatives and confidential information. It would go without saying because most reasonable people would so regard such a term. A term permitting the employer to place an employee on leave with pay during the period of resignation notice would be clearly expressed and, in the Court’s view, would not contradict any express provision of the contract.
Despite the fact that the Court ruled that the employer had the right to place the employee on gardening leave, it also ruled that the employer had breached and repudiated the employment contract by asking the employee to hand back his motor vehicle and iPhone. Given these items were part of the employee’s remuneration and salary package, the employer had no right to remove these items without the agreement of the employee. In doing so, the employer’s actions were repudiatory, allowing the employee to treat himself as relieved of further compliance with the employment contract.
Lessons for employers
- Ensure there is provision made in employment contracts entitling you to place employees on gardening leave during notice periods when either you or the employee give notice of termination.
- While an employee is on gardening leave, he or she is entitled to all the remuneration and employment benefits as if the employee was working for you ordinarily. Do not remove access to motor vehicles, mobile phones or other work tools unless you are sure they constitute ‘tools of trade’ as opposed to agreed components of the employee’s remuneration package.
- If you do not have an express right in the employment contract to place your employee on gardening leave, you will need to obtain legal advice as to whether that right arises by implication.
Author: Charles Power
Charles Power, Partner
T: +61 3 9321 9942
Stephen Trew, Managing Partner, Sydney
T: +61 2 8083 0439
Michael Selinger, Partner
T: +61 2 8083 0430
Justine Ansell, Special Counsel, Brisbane
T: +61 7 3135 0507
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