Australia: Gardening leave - weeding out potentially hazardous employees following a resignation

Whilst we previously touched on the concept of gardening leave in this 2016 blog – Coleman Greig's Employment Law team have below expanded on what you need to know with regard to forcing a soon-to-be-Ex employee to take gardening leave.

When an employee resigns, it is often prudent for their employer to keep the departing employee on their books. During this period, the employer may instruct the employee not to attend their place of work – but to still remain available to perform duties as directed.

This is commonly known as 'gardening leave'.

Most businesses use the approved notice period to recruit a suitable replacement, and to manage the transition and handover of projects and tasks from the departing employee to other staff. With today's technology, employees can often assist their employer with these transition and handover tasks just as effectively from home as they can in the office.

The business case for placing a departing employee on gardening leave can be compelling, as unlike the aforementioned transition and handover tasks, undesirable behaviour (whether intentionally malicious or not) is much harder for an employee to carry out from home.

Some genuine motivations for an employer to send an employee home on gardening leave are:

• While an employee is away from the office, their access to new and existing clients and suppliers is greatly reduced.
• Employees that have resigned are often focused on finishing up their employment, rather than working to achieving company goals or taking care in their work.
• Departing employees are more likely to become progressively unproductive, which can have negative flow on effects to other members of staff.
• If the employee is departing to join a competitor, they may look to make copies of confidential information - including client lists, company IP, quotes and purchasing information and/or documents showing new business leads. Some employees will do this simply because they think it will help them to make a good impression with their new employer.
• The notice period can also be used to effectively review the employee's recent activities (to identify whether there's any evidence of misappropriation of confidential information or other unlawful activity) without interference, and while they are still obliged to carry out any reasonable direction, including disclosing information.

What are the rules?

Employment contracts revolve around a bargain reached between an employer and an employee for providing personal labour in return for a wage or salary. So, what happens to the contract if an employer directs employees not to do work? Can an employer send staff on gardening leave, or are they required to provide their employees with work?

The answer, as is often the case in law, is yes and no - and comes down to the terms of the contract when read in light of the surrounding circumstances.

Although this may be surprising, employers do not have a statutory or common law right to not give departing employees work to do. Employer's rights are therefore largely determined by the terms of the employment contract (or similarly, the outcome of negotiations with the departing employee).

The difficulty for an employer will be if the employee might suffer loss as a consequence of being deprived of the opportunity to perform their work. This can occur in any number of ways, although a few common examples are:

• Where the employee's salary includes commission, the employee will lose income if they are prevented from working.
• Where employees may lose income if they have a contractual entitlement to receive performance bonuses.
• Where performers, presenters, writers and other artists might suffer if they lose exposure to their audience.
• Courts have also accepted that some types of work require employees to keep their knowledge and skills current (and their scalpels sharp), including share traders, IT professionals and of course, surgeons.

In these types of cases, and where the employment contract makes no reference to the potential for gardening leave, the Courts have found that because the work itself provides additional benefits to the employee beyond their basic salary, in the absence of a contrary term of the contract, it is an implied term of the contract that the employer will provide actual work for the employee to perform. This means that a company could breach its contract with an employee if it sends the employee home on gardening leave.

What are the risks?

• Depriving an employee of the opportunity to accrue benefits (including income) as a consequence of being placed on gardening leave could amount to a breach of contract and expose the employer to a claim for damages¹.
• While the act of placing an employee on gardening leave may not breach the contract, withholding allowances or other benefits under the contract during a period of gardening leave could amount to repudiatory conduct².
• Placing an employee on gardening leave could also invalidate a restraint of trade term under a contract of employment, exposing the company to a claim for damages for loss of earnings during the notice period, and leaving the employee free to engage in a competitive business³.

What can companies do?

The simplest step for businesses is to ensure that their employment contracts are flexible enough to permit them to send an employee on gardening leave if the move is deemed necessary.

If, however, you find that you don't have an express right in the contract to not provide work to a departing employee, you might still have an implied right.

Footnotes

¹ Grace Worldwide (Australia) v Steve Alves [2017] NSWSC 1296. In this case, the company was ultimately found to have an implied right to place the employee on garden leave, but only because the employee did not suffer loss by not working during the notice period.

² Actrol Parts Pty Ltd v Coppi (No 2) [2015] VSC 694. In this case, the company directed the employee to immediately return his company car and phone on the day he resigned.

³Wesoky v Village Cinemas International [2001] FCA 32.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.