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Is everything in the garden rosy?

On the surface, the result of the judgment in J M Finn & Co Ltd v Holliday does not seem particularly earth-shattering or unexpected. Mr Holliday, who belligerently tried to disregard the terms of his garden leave provision, was held to his 12 month garden leave clause and its restrictions via a final injunction. However, it was Judge Simler’s methodology in coming to her decision which could have a significant impact for the law on garden leave and post-termination restrictions.

Mr Holliday joined J M Finn & Co Ltd in 1999. In 2008 he received a substantial pay rise which was accompanied by his acceptance of new notice and garden leave provisions. There was a 12 month reciprocal notice period and J M Finn reserved the right to place Mr Holliday on garden leave for the full period. During such period there were various express restrictions which Mr Holliday was required to abide by.

On 5 July 2013, Mr Holliday submitted written notice of his termination. Five days later he was placed on garden leave and J M Finn informed him that he was not to discuss business matters with any clients, should refer them to J M Finn if they made contact and that he should not tell clients the name of his new employer or make comment about his future plans. These specific instructions were in line with the general express restrictions on soliciting clients, which were contained within the garden leave clause.

Mr Holliday had lined up new employment with a company called Hargreave Hale. He informed J M Finn that he had taken legal advice and that the restrictions placed on him during garden leave were unfair and that he intended to start his new employment on 19 August 2013. In addition, Mr Holliday had extolled the virtues of his new employer to several clients and asserted that the client base that he built up was not solely the property of J M Finn. During this time, Mr Holliday also put a claim in for constructive dismissal based on not receiving a morning briefing from J M Finn whilst on garden leave, which he believed was essential to keep up his CPD training whilst on garden leave.

The matter came before Judge Simler who was tasked with deciding whether to make a final injunction (an interim injunction having already been successfully obtained against Mr Holliday) and to deal with Mr Holliday’s constructive dismissal claim.

Mr Holliday’s constructive dismissal claim is neither important to this article, nor did it hold any weight with Simler who dismissed it readily.

In relation to the challenge to the garden leave provisions, Simler held that in order to enforce the garden leave provision, J M Finn would have to show that it had a legitimate business interest to protect and that the restrictions in place during garden leave were a reasonable means of protecting that interest. It was not enough that Mr Holliday had willingly agreed to the provisions.

This reflects the usual test for assessing the enforceability of post-termination restrictions (usually by way of an injunction), the starting point being that for public policy reasons there should be no restraint of trade and that a business needs very good reasons for preventing an employee working wherever they want, for whoever they want.

There has been little previous case law on enforcing garden leave by way of an injunction and the cases usually relate to interlocutory hearings, meaning that they are rarely fully argued. There has been a common assumption that garden leave is not subject to the restraint of trade doctrine and should be assessed differently from restrictive covenants, not least because the employee is still subject to the employment contract, including the implied duty of fidelity.

In this case, Simler held that the test to enforce a garden leave clause involves the same basic considerations as for enforcing post termination restrictions. It is no longer enough that an employee has freely signed a contract and is within the contract during garden leave, the employer also has to demonstrate that enforcing the garden leave term is necessary to protect a legitimate business interest. Simler made it clear that enforcement of garden leave differs in at least one regard; whereas enforceability of a restriction is “all or nothing”, with garden leave it is open to a Judge to impose a shorter period of garden leave if this is felt to offer appropriate protection.

The outcome was successful for J M Finn who did show that they had a legitimate interest to protect, further, that such an interest needed to be protected for the full 12 months.

The full implications of this decision will not be fully understood until it is tested in future cases, but the theoretical implications are troubling. There has been a common assumption that garden leave was a purely contractual consideration not subject to the doctrine of restraint of trade in the same way as restrictive covenants. This case suggests that the prudent employer should be including an express declaration of the business interests it needs to protect during a period of garden leave.

What is still unclear is the standard which needs to be met in order to successfully enforce garden leave provisions. As noted above, the court has a discretion to shorten the period if it is judged to be too harsh rather than simply dismiss it entirely. Assuming the business has a legitimate interest to protect, it will be interesting to see if considerations such as the employee freely entering into the contract and the fact that the employee will not suffer any monetary loss during garden leave will feed into the assessment as to how reasonable it is to enforce garden leave provisions.

Keep up to date with the latest case law.

 

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further