In the recent case of J M Finn & Co –v- Holliday, the High Court has once again demonstrated that it is prepared to grant injunctions to uphold a garden leave provision within a contract; even one which is for as long as 12 months.
Background
Mr Holliday was an Investment Manager with J M Finn. He was responsible for a number of clients and with approximately £200m funds under management. His contract contained provisions requiring each party to give 12 months’ notice of termination. It also contained a garden leave clause which expressly set out certain restrictions which would apply if the employer, it its discretion, decided to place the employee on garden leave during any notice period.
Mr Holliday became disillusioned and tendered his resignation. He had found another position and, somewhat naively, it appears that he hoped to come to an “amicable” arrangement with his former employer whereby he would be able to transfer all his clients to the new business. Unsurprisingly the employer refused to waive the provisions of his employment contract, placed him on garden leave and wrote to him reminding him of the restrictions which would apply. Arrangements were made to remove his email account and to ensure that he received no on-going market updates.
It appears that in a desperate attempt to manoeuvre himself into a position in which he would be able to join his new employer quickly, Mr Holliday wrote to his employers claiming that their decision not to forward to him the current market information amounted to a repudiatory breach of contract which meant that he could treat the employment contract as at an end and therefore they could no longer enforce the garden leave provisions and the associated restricted covenants against him.
The court’s approach
The employer obtained an interim injunction enforcing the terms of the garden leave provisions and the Court made an Order for a speedy trial which took place four months after the notice had been served but well within the 12 month garden leave period. The Court acknowledged that whilst the enforcement of a garden leave provision in a contract might be regarded as operating as a restraint of trade (and therefore might be regarded as unreasonable) it is not to be addressed in the same way as a restrictive covenant. (If such a covenant is unreasonable in its scope or extent, it can be struck out in its entirety. The reasonableness of the provision is also to be addressed as at the date of the contract.)
When reviewing a garden leave provision, the length of the period of notice will not usually be regarded as unreasonable if it has been agreed between the parties, nor would it be unreasonable for the employer to be permitted to remove the employee from the workplace environment during that notice period. The issue for the Court is to determine whether any associated restrictions on the employee’s conduct might be regarded as unreasonable. This needs to be considered at the time that the restrictions are being imposed and not at the time that the contract was entered into.
There is one particular factor which will always make a significant difference to the Court’s attitude in enforcing garden leave provisions and that is that whilst the employee is being deprived of his ability to deal with his former clients and to compete in the market is still being paid his full salary and benefits. Nevertheless, the approach taken by the Judge does illustrate the fact that the circumstances of each case may well be different. Evidence was provided as to the way that an Investment Management firm would conduct its business and in particular of the fact that
an investment manager might normally only expect to deal with his clients twice a year;
it would take the employer a period of time (several months) to recruit, train and introduce replacement managers;
the performance of an Investment Manager can only be assessed once decisions have been made on the portfolio and the performance of the portfolio can be assessed in the light of them.
Conclusion
The case illustrates that the use of garden leave provisions is an important weapon in the employer’s armoury when seeking to protect on-going business when an employee departs. From an employee’s perspective, the judgment makes it clear that even though an employee may be bound by a 12 month notice period and have an associated garden leave provision the Court will be prepared to consider arguments that associated restrictions should not continue for the whole of that 12 month period.