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Garden Leave and Restrictive Covenants

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Garden Leave and Restrictive Covenants

No matter how good an employer you are, employees leave, either through their choice or yours and sometimes this can be more damaging than simply having to find a replacement.

While working for you your employees may have built up knowledge of your working methods, relationships with clients and suppliers, even trade secrets.

Where you have to dismiss an employee, for misconduct or redundancy, that employee might have the knowledge and means to do some damage before they leaves.

So what can you do to protect your business when someone leaves?

During employment

If you have employees who you think may be a particular risk as future competitors, you might wish to expressly prevent them from taking steps to leave and set up their own business. For example you should consider putting a clause in their employment contract to stop them from working on their own business on the side, or from making copies of any important documents. You could also require them not to connect with clients on personal social media, and not to keep their own client lists.

Notice period

Unless someone has committed an act of gross misconduct, they must be given a notice period when dismissed. Equally they must give you notice to resign. The advantage of the notice period is that you are still paying the employee, so they are still (to a certain extent) under your control. Any contractual clauses contained in their employment contract preventing them from working on their own business will continue to apply.

Garden leave can be used to protect yourself. Garden leave (lots of people call it “gardening leave”) is where an employee is still employed (usually but not always during the notice period) but not required (in fact forbidden) to perform their normal duties. This has several advantages. One is that it prevents an employee from actively doing things that may damage the business. For example someone with responsibility for IT security could do a lot of damage from their desk if they felt they had been unfairly selected for redundancy.

The other is that, particularly if it is a long notice period, the advantages they have gained in the business will fade. For example production methods may change, or clients may start to forget about them.

Can you put any employee on garden leave? Not necessarily. While there is no general duty for you to provide an employee with work, courts have found that in some professions (such as those where you have to work regularly to keep your skills up) not providing work could be a breach of contract. A breach of contract could lead to the employee leaving immediately, claiming to have been unfairly and wrongly dismissed, and worse, not be bound by any post-termination restrictions (see below). It is therefore good practice to have a clause in your employment contracts giving you the contractual right to put an employee on garden leave.

Post termination restrictions

Often known as Restrictive covenants, these are clauses in the contract that restrict what an employee can do after they have left. Common restrictions include not approaching clients for a certain amount of time, or not to do business in a specified geographical area.

Restrictive covenants are notoriously difficult to draft – if they are too broad a court won’t enforce them but if they are too narrow then there is no point in them being there. Some points to bear in mind are:

  • A covenant must protect a legitimate interest that belongs to the employer (such as a client list or a production method), you don’t have the right to be protected from competition generally (but a non-compete clause may be the only way of protecting a legitimate business interest)
  • A court will look at the parties at the moment they agreed the covenant – there’s no point in giving the tea boy a set of restrictive covenants in case he turns out to be a brilliant programmer.
  • A clause must do only what is necessary to protect the business interest, no more.
  • While a court will happily edit out parts of a clause to make it enforceable, they won’t rewrite it for you.

Of course your hope is to not go to court to enforce the covenant, your hope is that the employee will faithfully adhere to the restrictions without question. How strong and reasonable you make your covenants depends on how likely it is that the employee will conform.

Protecting your business: dos and don’ts

Do

  • Have a contractual notice period on each side that is suitable for the job
  • Think about whether you need to restrict outside business interests
  • Be ready to explain the justification behind post termination restrictions
  • Re-negotiate contracts and covenants if and when the business and employee’s roles within it change

Don’t

  • Have blanket restrictions on all staff
  • Leave the door open for your employee to claim to have been constructively dismissed
  • Have a sloppily written restriction in the hope that a court will find the best in it

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