Does gardening leave count towards a restraint period on termination?


‘Gardening leave’ refers to suspension of an employee from their regular duties, on full pay, after they have given notice of their intention to resign. This leave is in lieu of them working during the notice period which may be stipulated under an employment contract. The purpose of gardening leave is to prohibit the employee from accessing confidential information, liaising with stakeholders, and otherwise influencing an organisation they no longer have a vested interest in. This often occurs when employees are in a senior position, or the employer has concerns about the protection of the goodwill of the business.

In this article, Susan Moran, Principal of our dispute resolution group, considers the recent case of DP World Sydney Ltd v Guy [2016] NSWSC 1072. In this case, the NSW Supreme Court examined and clarified the circumstances under which gardening leave will be taken into account when considering the restraint period under a contract of employment.

The Facts

The defendant Mr Guy, was employed by DP World Sydney Ltd (DP World) as General Manager of Operations, Port Botany Terminal.

On 27 April 2016 Mr Guy accepted an offer of employment from Asciano in the position of Terminal Manager and intended to commence this new role on 29 July 2016.

On the day of his resignation, DP World informed Mr Guy they required him to remain in his employment for his notice period and that he would be placed on gardening leave for the entirety of that period.   In essence he would remain employed by DP World but not be required to attend work, more significantly he was not able to take up his new position, until the expiration of that 3 month period when his employment with DP World would end.

Mr Guy’s employment contract contained a 3 month restraint which acted to prevent him from engaging in any business or activity that is the same or substantially the same as his current employment. It was accepted in these proceedings that Mr Guy’s new role with Asciano would be in breach of this provision if he commenced the role prior to the end of the 3 month restraint period.

A dispute arose as to whether the period of gardening leave would count towards the restraint period of 3 months under the employment contract.  Mr Guy submitted that the gardening leave should count towards the restraint period, with the result that he was free to commence employment with Asciano immediately upon the last day of his employment with DP World.

DP World opposed this, and stated the restraint should apply as a further 3 month period commencing from the last day of his employment, with the effect that he would be unable to take up his new role with Asciano for a period of 6 months from the date of his resignation.

When did the employment relationship terminate?

The restraint clause of the contract stated ‘the Restraint Period means the period of three months starting on the date of termination of your employment’.

The question before the Court was, when did Mr Guy’s employment terminate? The Court held that this clause was to be interpreted as meaning ‘the termination of your employment contract, rather than the cessation of the employment relationship’.

The Court held that the employment relationship did not terminate at the time of the commencement of the gardening leave but rather at the conclusion of the gardening leave.

Commercial Impact

This case highlights some key factors employers should consider when drafting employment contracts, including:

  1. Ensure contracts of employment are clear on when the employment relationship terminates with reference to any notice provisions, and performance of duties after resignation;
  2. Placing an employee on gardening leave can only occur in circumstances where the employment contract includes a specific provision. Ensure contracts, particularly for senior members of staff, have provision for the placement of employees on gardening leave.

Consider how notice requirements and restraints can work together to protect employers. As gardening leave is more easily enforced than a restraint provision, termination of employment provisions that include a lengthy notice requirement can assist with the protection of a business’s interests after an employee resigns.

This article is not legal advice.  It is intended to provide commentary and general information only.  Access to this article does not entitle you to rely on it as legal advice.  You should obtain formal legal advice specific to your own situation.  Please contact us if you require advice on matters covered by this article.