Settlement Agreements and Garden Leave

Contracts of employment often provide employers the right to make a payment to employees in place of them working their notice period. Employers are keen to retain this discretion as circumstances may arise where they need to swiftly remove an employee out of the business or an employee may wish to move quickly to a new role. When the employee is leaving amicably and all parties agree a Payment In Lieu Of Notice (“PILON”) may be used.

Employees and employers may enter into negotiations with an eye on concluding a settlement agreement where the employee works part of their notice and receive a PILON for the remaining period of their notice.

Employers may exercise discretion to enforce a departing employee to take garden leave. Garden leave is the term used to describe the situation whereby an employee’s contract of employment continues but the employee is required to stay at home.

The purpose of garden leave is to enable an employer to protect their business when employees leave by restricting the duties of the departing employee. During this period of time the contract of employment remains but the employee is required to stay away from the business, and also prevents them from joining a competitor for as long as possible. The employer must continue to pay the employee his salary and all the other contractual benefits.

A departing employee does not have the right to placed on garden leave and must continue to honour their contract of employment. An employee may not compel his employer to be placed on gardening leave.

An employee may try to quit immediately without giving notice, even though this in breach of contract. An employer may refuse to accept the termination of the contract. In a recent case of Sunrise Brokers LLP v Rodgers, Mr Rodgers refused to work the duration of his notice having resigned so Sunrise Brokers ceased paying him during the remainder of his garden leave.

Enforcement is not always guaranteed and the longer the period of garden leave, the less likely it is to be upheld in full. Courts will only act to protect legitimate business interest where an injunction is sought.

If you are unsure how your garden leave provisions and your post termination covenants impact upon your freedom to move jobs, please get in contact with a member of our Team.

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