22 November 2013: Garden Leave and Post Termination Restrictions:
If you have staff in a sales or client-facing roles, you may be worried about them poaching your clients and goodwill if they then leave. There are two main ways of doing this:
- Have a ‘Garden leave’ clause to suspend them from their duties during their notice period, while still being covered by the normal duties of confidentiality and fidelity etc.
- Have effective Post Termination Restrictions to prevent them from poaching clients (or colleagues) for a period after leaving.
In J M Finn & Co Ltd v Holliday this month, the High Court held that a twelve month ‘garden leave’ clause was enforceable.
The appropriately named Mr Holliday was an ‘old-fashioned’ stockbroker who resigned on notice to join a competitor. He was placed on garden leave to serve out his 12 month notice period, but he then resigned with immediate effect claiming constructive dismissal (which would have freed him to join the competitor straight away).
The High Court did not agree that he had been constructively dismissed. Furthermore it was legitimate and reasonable on the facts to protect client connections with a lengthy 12 month garden leave period.
Many employees would be only too happy to be paid to idle their time away in the garden for 12 months. Such long notice clauses are rare, and most employers will instead rely on post termination restrictions, for example stopping the employee from poaching clients for 6 months after leaving.
Post Termination Restrictions must be drafted very carefully indeed, as if they are not reasonable in terms and scope to protect legitimate interests of the business, they will not be enforceable.
It’s always better to cover these issues before the Mr Holliday’s of this world decide to resign, so if you would like us to look at your current employment provisions, do let us know.