Garden leave clauses: the road to executive termination

02 December 2016

The recent falling out between Ron Dennis and the McLaren F1 team shows that even the glamorous world of Formula 1 is not immune from the reaches of employment law.

This is an excerpt from a Shoosmiths legal briefing. Thank you to Legal Week Law for sharing.

It's a perfect example that demonstrates the power of a good garden leave clause when there is a senior management disagreement.

Garden leave

A garden leave provision will commonly be found in a senior employee's contract of employment. A comprehensive provision can be one of the most valuable tools in the employer's toolkit when it comes to terminating employment.

Such a clause allows the employer to remove duties from an employee and exclude them from the workplace whilst they are serving out their notice period, irrespective of which party gives notice to the other. Often this is referred to as 'gardening leave' as the employee is required to stay at home, in the garden if they wish!

Garden leave clauses typically also prevent an employee from having any contact with colleagues or customers whilst expressly preserving the employee's obligations of confidentiality and fidelity to the employer. This makes it an excellent business protection tool.

Garden leave is not the same as suspension and there is no need for there to have been any wrongdoing for an employer to place an individual on garden leave.

If drafted correctly, it is at the employer's discretion whether or not to trigger the garden leave clause, there is no right for the employee to be put on garden leave. An employer will usually want the widest discretion to put the employee on garden leave for some, all or none of their notice period.

The downside for the employer is that because the employment contact is still in effect during any period of garden leave, it remains bound to pay the employee and continue to provide all their contractual benefits. This is in contrast to restrictive covenants which continue to apply to an individual after employment has ended and the employer's contractual obligations no longer apply.

Accrual of annual leave

According to the recent judgment of the European Court of Justice in the case of Maschek v Magistratsdirektion der Stadt Wien, an employee on garden leave does not accrue annual leave for the duration of that period. The only exception will be where the employee is able to show that they are unfit for work due to sickness and in such circumstances annual leave will accrue during those periods. It may still be preferable to expressly provide for the treatment of annual leave in the garden leave drafting.