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The Singapore Law Gazette

The Law and Practice of Garden Leave: Rights, Duties, Enforcement and Resistance

Garden leave is typically an arrangement where an employer requires an employee to stay away from work although the employment contract has not been terminated. While this practice occurs in Singapore, garden leave raises several unsettled legal issues under Singapore law. Can an employer enforce garden leave on an employee notwithstanding that there is no clause in the employment contract expressly stipulating the right to impose garden leave? Or put another way, can an employee resist garden leave on the basis that she has a right to work? What are the rights and duties of employees and employers during garden leave?

Passing Mention in Singapore Case Law

Although garden leave has been mentioned in several reported Singapore cases, it has been almost always mentioned as a matter of background fact. Only Woo Bih Li J in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] 1 SLR 847 (HC) at [229] has expressly “reserve[d]… comment on the validity of garden leave”. And in Ho Seow Wan v Ho Poey Wee and others [2015] SGHC 304 at [14], it was mentioned that the High Court had ordered the plaintiff to go on garden leave with full salary paid, the reason being that the plaintiff was disrupting the operations of his company and using a court order to get back at the defendants. No discussion on the garden leave order was set out.

Situations Without Garden Leave Clause

Where an employment contract has no express garden leave clause, it is not immediately clear whether an employer can legally send an employee on garden leave. In such a scenario, an employee may claim that he has a right to work, and that by sending him on garden leave, her employer is in repudiatory breach of the employment contract, thereby releasing her from the notice period and any enforceable post-termination restrictive covenants.1 Under the rule in General Billposting Co Ltd v Atkinson [1909] AC 118 (HL).

In the English Court of Appeal decision of William Hill Organisation Ltd v Tucker,2William Hill Organisation Ltd v Tucker [1999] ICR 291. the employee was a senior dealer in a spread betting business and the employment contract incorporated a handbook which provided that the employer would invest in its staff to ensure they had every opportunity to develop their skills. The employee gave notice, and the employer suspended him for the six-month notice period while paying his salary. The Court of Appeal refused to grant the employer an injunction restraining the employee from entering into employment with a competing business or acting in breach of his obligation of good faith and fidelity during that period.

The Court held that the employer had breached an obligation to permit the employee to work in his specific and unique post where his skills had to be exercised frequently. As such, the employee was released from his obligation. Citing Turner v Sawdon and Co [1901] 2 KB 653 at 659–660 (approved by the House of Lords in Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209, 218), Morritt LJ noted at 297–300 that the word ‘employ’ may mean giving actual work to be done by the person employed. It would depend on the nature of employment as to whether such a right to work exists.

Examples given where a right to work would be found are:

  1. An actor who, having been engaged, must be given an opportunity to display her abilities before the public;
  2. A commission or piece work-rated worker must be given a reasonable amount of work; and
  3. A salesman who must be given the opportunity to solicit orders.

Citing Langston v Amalgamated Union of Engineering Workers (No 2) [1974] ICR 510, Morritt LJ also noted that in an employment of one who needs to practice to maintain or develop his skills, the consideration in an employment contract will include an obligation to provide a reasonable amount of work. Examples include chief sub-editor of a newspaper and a manager of an overseas business. However, in cases of employees engaged for an indefinite term and at a fixed wage or salary the courts have been much more reluctant to impose such an obligation on the employer.

Morritt LJ also found at 301 that the employment handbook’s provision on investing in staff and on the employer’s power of suspension found against the employer having a right to send the employee on garden leave. Further, Morritt LJ observed that if the employee has no right to work, then the employer can send him off on garden leave without an express clause. Not so where there is such a right to work and corresponding obligation on the employer to give work.

Hence, where there is no express garden leave clause, an employer may not send his employee on garden leave if he has an obligation to give work to the employee. Otherwise, the employer may be in repudiatory breach of the employment contract. Some considerations in determining whether there is such an obligation would be, inter alia:

  1. Whether the employment required frequent use of certain skills;
  2. Whether the employee held a high position in the organisation;
  3. Whether the employment was for a fixed term or not;
  4. Whether the remuneration was at a fixed rate or on a commission or piece-rate basis; and
  5. Whether the employment involved opportunities to display the employee’s abilities in public (more relevant for creative and entertainment industries).

However, there have been cases where the employer was allowed to send its employees on garden leave and enforce it by way of an injunction where there was no express garden leave clause. This is where the employees have in the first place breached their employment obligations of good faith and fidelity, trust and confidence, not misusing confidential information and/or breached fiduciary obligations.

In SG&R Valuation Service Co LLC v Boudrais [2008] EWHC 1340 (QB), the employees resigned and served out their notice period. The employer discovered that they had committed wrongdoing, viz, misappropriation of confidential information, diversion of business opportunities and solicitation of other employees. The employer thus imposed garden leave on the defendant employees.

Cranston J applied William Hill Organisation Ltd v Tucker and found that the employees had a right to work: their work was specialised; they had significant skills; one of the employees who underwrites property valuations required regular use of the skills and contemporary knowledge of the market; they occupied high positions in the organisation; they had a discretionary bonus which was a significant part of their remuneration package so without work they would have inability to earn that bonus. However, Cranston J held that there was a qualification to the right to work:

“Employees who have a right to work have that right subject to the qualification that they have not, as a result of some prior breach of contract or other duty, demonstrated in a serious way that they are not ready or willing to work, or, to put it another way, that they have not rendered it impossible or reasonably impracticable for the employer to provide work. The breach of contract or other duty must constitute wrongdoing, by reason of which they will profit or potentially profit. In such circumstances, there is no obligation on the employer to provide work, although the contract of employment is ongoing. This is not an implied term in the employment contract but is a qualification to the legal construct, the right to work.”

Hence, Cranston J held that the employer was justified in imposing garden leave on the employees in that case.

In Standard Life Health Care Ltd v Gorman [2009] EWCA Civ 1292, the English Court of Appeal held that the employer was justified in imposing garden leave and suspending the employees, who were commission-based insurance salespersons, as they had breached their duties of good faith by registering themselves with another employer. Waller LJ, found that the employees had a right to work. This was reinforced by the fact that there was an express provision for suspension of employees. Citing SG&R Valuation Service Co LLC v Boudrais [2008] EWHC 1340 (QB), Waller LJ held that “where the employer discovers that the employee has been in serious breach of duty and in breach of his duty of good faith … then the employer has, even if he keeps the contract alive, no obligation to provide work; that obligation to provide work being interdependent with the obligation of the employee to act loyally”. In deciding to uphold the injunction requiring the employees to remain suspended on garden leave without remuneration, Waller LJ took into account the fact that the employees had registered themselves with another employee in breach of their employment obligations, and that the new employer had been remunerating during the time they were unable to work.

It is interesting that in William Hill Organisation Ltd v Tucker, Morritt LJ made a final observation at 301 that the court should be careful not to grant interlocutory relief to enforce a garden leave clause to any greater extent than would be covered by a justifiable covenant in restraint of trade previously entered into by an employee. It is to the issue of whether the courts would enforce an express garden leave clause by injunction, which we now turn.

Situations with Garden Leave Clause

Generally, an injunction would not be granted where the effect will be to compel the employee to continue to work for the employer. If the employer does not undertake to pay the employee, whether he works or not, he may fall foul of that principle.3Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373. Hence, where there is an express garden leave clause and the employer exercises it, paying the employee during such time, this would be valid.

However, as stated above, where an employee refuses to work, then an employer may not be so obliged to pay the employee salary, as in Standard Life Health Care Ltd v Gorman [2009] EWCA Civ 1292.

Where an employer has put an employee on garden leave and then seeks an injunction to restrain the unwilling employee from joining a competitor before the expiry of his notice period, an injunction to enforce that period of garden leave must be considered in light of the restraint of trade doctrine as a matter of public policy to prevent abuse.4Finn & Co Ltd v Holliday [2013] EWHC 3450 at [57].

Thus, an employer seeking the Court to order an injunction to impose garden leave on an employee must satisfy the court, as with restrictive covenants, that such enforcement protects a legitimate interest (typically, protecting confidential information, client or trade connection and stability of workforce, ie, preventing solicitation of employees) and that such injunction extends no further than is necessary to protect such interest. The cases also suggest that typically the employer will give an undertaking to the court to remunerate the employee during the garden leave period.

Such examination is with reference to the time when enforcement is sought. Further, it must be shown to be “just and convenient”. If the employer cannot show any damage or if there is delay in seeking enforcing, an injunction may not be ordered. Further, the courts will exercise greater flexibility in cutting down the terms of restriction for garden leave than dealing with a restrictive covenant, eg, granting an injunction for less than the full notice period.5Finn & Co Ltd v Holliday [2013] EWHC 3450 at [61].

It is suggested that the Court may enforce a garden leave clause beyond the end of the notice period to include part of any post-termination restrictive covenant period.6Tullett Prebon v BGC [2010] EWHC 484 (QB) at [224]–[225]; Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373. This is of course provided the court has found that such post-termination restrictive covenants are valid. In Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373 at [49], Underhill LJ rationalised that it was justifiable that the court may decide that while the restrictive covenant was reasonable at the time it was entered into, the change in circumstances, viz, the intervention of the garden leave, may make it reasonable that the restrictive covenant is only enforceable in part but not in full. In that case, the Court of Appeal thought that the trial judge’s decision to order an injunction aggregating a six-month notice period and four months of a six-month restrictive covenant period was valid.

Legal Rights and Duties During Garden Leave

What happens to the legal rights and obligations under the employment contract when the employee is on garden leave?

Express Clauses

An express garden leave clause may stipulate that:

  1. The employee’s remuneration is different from his usual remuneration, eg, not being entitled to bonus or share/stock options;7 While earlier English cases such as Bridgen v American Express Bank Ltd [2000] IRLR 94 suggest that such clauses relating to bonuses or commissions being reduced or disentitled once the employee is on garden leave may be subject to the reasonableness requirement under the Unfair Contract Terms Act, subsequent cases such as Peninsula Business Services Ltd v Sweeney [2004] IRLR 49 and Commerzbank AG v Keen [2006] EWCA Civ 1536 held otherwise. See also Ravi Chandran, “Bonus (and Other Payments) In Employment” (2012) 24 SAcLJ 338 at [7]–[8]. One should also note the Singapore Court of Appeal’s decision in Mano Vikrant Singh v Cargill TSF Asia Pte Ltd [2012] SGCA 42 on a deferred incentive bonus scheme which distinguished payment-for-loyalty clauses from forfeiture-for-competition clauses for the purpose of determining their validity through the lens of the restraint of trade doctrine.
  2. The employee shall not make any communication or contact with the employer’s clients or other employees;
  3. The employee is obliged to do or not do certain tasks, including whether staying at home and/or away from office, handover of responsibilities, resigning from related directorships, returning company property.

However, there may be constraints on the employer’s discretion. Although this may be without authority, it is plausible that the implied duty of mutual trust and confidence continues to apply during the garden leave period as does the duty of good faith and fidelity (see below). So, for example, if the employer exercises its discretion to make its Chief Executive Officer (CEO) undertake some unduly gruelling manual labour, this may well be a breach of that implied duty (and this is not a matter of making any value judgment on the value of work but about the breaking of fundamental expectations).

Duty of Good Faith and Fidelity

Case law establishes that while the duty of good faith and fidelity still applies to the employee during garden leave, the scope and extent of its application is dependent on the factual circumstances of the garden leave. The cases suggest that the duty would prohibit the employee from engaging in competitive activity and the solicitation of employees.

In Balston Ltd v Headline Filters Ltd [1990] FSR 385, Falconer J held at 416 that the implied duty of good faith and fidelity continued to apply during garden leave and that the employee had breached the duty by entering into active competition with his employer for his employer’s existing customer. However, he was not in breach for failing to inform his employer about the customer’s conversation with him raising its concern about the employer’s impending price changes to its products. This was because “his functions as an employee had ceased and he was not under any duty to take any steps to further or advance [the employer’s] business”.

That the implied duty of good faith and fidelity continued to apply during garden leave was doubted by Scott VC in Symbian Ltd v Christensen (8th May 2000) ChD unreported, but this was not dealt with by the Court of Appeal on appeal in Symbian Ltd v Christensen [2000] EWCA Civ 517.

In RDF Media Group plc v Clements [2007] EWHC 2892, Bernard Livesay QC sitting as a Deputy High Court Judge found that the implied duty of mutual trust and confidence between employer and employee applied during the garden leave period and was indeed breached by the employer by its vilification of the employee in a press briefing.

In Imam-Sadeque v BlueBay Asset Management (Services) Ltd [2012] EWHC 3511, Popplewell J affirmed the principle that the duty of good faith and fidelity continued to apply during garden leave albeit attenuated depending on the facts. He observed at [144]–[145] that “[d]uring garden leave the employee has the benefit of being paid in full without having to carry out any positive work obligations. The employer is paying for the continued right to insist upon the employee performing his negative obligations … There is no reason in principle, or authority, why the aspects of the duty of loyalty which touch upon competitive activity, or the enticing away of employees, should be attenuated so as to interfere with these legitimate purposes of garden leave”.

Employee May Work for Another Employer

An employee on garden leave may be permitted to work for another employer which may even be a competitor, provided there is no express stipulation otherwise. In Samantha Hutchings v Coinseed Limited [1998] IRLR 190 (CA), the English Court of Appeal held that the employee had not repudiated her employment contract by commencing work for competitor during her garden leave period, during which the employer continued to pay her salary. The court found that there was no express or implied obligation that the employee should not take another job, given that the employee had been released from work for the existing employer.

Conclusion

The notable absence of Singapore judicial determinations on garden leave despite the author’s anecdotal observation that garden leave is not foreign in local practice suggests that many employers and employees may have taken for granted that garden leave is legally enforceable, or that such clauses are not commonly enforced, with employers preferring to rely on non-compete clauses. However, while both non-compete clauses and garden leave clauses are subject to restraint of trade doctrine, English case law suggests that the courts will be more flexible with, and inclined to enforce, garden leave clauses. Especially so if the employer undertakes to pay the employee salary during the garden leave period. Such an arrangement would be a fairer bargain which would be less abhorrent to the public policy against restraining a person from working. Indeed, one might even argue that the courts should prefer garden leave to non-compete injunctions, and thus take a much more stringent approach towards the latter, to shift employment practices and bring balance to power in this respect.

That assumes of course the existence of an express garden leave clause in the employment contract in the first place. It would be prudent and preferable for employers to carefully draft comprehensive garden leave clauses which may stand a better chance at being enforced than non-compete clauses. In enforcing or resisting the enforcement of garden leave by way of injunctions, parties should consider the legitimate interests sought to be protected and the duration of garden leave which would make it just and proportionate to give effect to such interests. Even when garden leave is applied, parties should be careful not to breach outstanding express and implied duties such as that of good faith and fidelity and mutual trust and confidence.

 

Endnotes   [ + ]

1. Under the rule in General Billposting Co Ltd v Atkinson [1909] AC 118 (HL).
2.William Hill Organisation Ltd v Tucker [1999] ICR 291.
3.Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373.
4.Finn & Co Ltd v Holliday [2013] EWHC 3450 at [57].
5.Finn & Co Ltd v Holliday [2013] EWHC 3450 at [61].
6.Tullett Prebon v BGC [2010] EWHC 484 (QB) at [224]–[225]; Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373.
7. While earlier English cases such as Bridgen v American Express Bank Ltd [2000] IRLR 94 suggest that such clauses relating to bonuses or commissions being reduced or disentitled once the employee is on garden leave may be subject to the reasonableness requirement under the Unfair Contract Terms Act, subsequent cases such as Peninsula Business Services Ltd v Sweeney [2004] IRLR 49 and Commerzbank AG v Keen [2006] EWCA Civ 1536 held otherwise. See also Ravi Chandran, “Bonus (and Other Payments) In Employment” (2012) 24 SAcLJ 338 at [7]–[8]. One should also note the Singapore Court of Appeal’s decision in Mano Vikrant Singh v Cargill TSF Asia Pte Ltd [2012] SGCA 42 on a deferred incentive bonus scheme which distinguished payment-for-loyalty clauses from forfeiture-for-competition clauses for the purpose of determining their validity through the lens of the restraint of trade doctrine.

Ronald JJ Wong
Director
Covenant Chambers LLC
E-mail: ronald.wong@covenantchambers.com

Ronald JJ Wong is a Director at Covenant Chambers LLC, practising in litigation, advisory, and non-disputes work, with special interest in technology, corporate disputes and transactions, investments and acquisitions, financial regulations, and employment.