Another of the most common implied terms in every employment contract is that of good faith. This includes a duty on employees not to disclose confidential business information. Once the employment contract terminates, ex-employees must still ensure they do not reveal information that would be classed as a trade secret. Given the limited nature of employees’ obligations, many employers choose to include more restrictive covenants for the period after employment ends, to protect their business interests (and not merely trade secrets).
One of the most common clauses restricting the employee’s work however applies while the employee is still employed. This is known as “garden leave” (literally because the employee does not come to work but stays at home and may, if they feel so inclined, do gardening). Because mutuality of obligation lies at the heart of an employment contract (i.e. the employer must give the employee work and the employee must do it), the employer can only keep the employee away if there is an express contractual provision to that effect, or risk being in breach of contract. The employee remains employed, and therefore must be paid, but the more onerous obligations regarding confidentiality during employment will apply, and provided the clause is drafted correctly, the employee cannot set up or join a competing business, or poach clients and staff. Garden leave clauses normally apply once an employee has given or been given notice, as an alternative to paying in lieu.
The implied duty of fidelity ceases once employment ends, so that an employer may try to restrict the employee’s freedom to compete after they have left. The starting point for courts is that such restraints on a former employee are void as being in restraint of trade and contrary to public policy and therefore will not be enforced – unless they can be shown to be only as wide as is reasonably necessary to protect the employer’s legitimate business interests. For these purposes courts in the UK will consider a number of different issues, including the length (in time) and scope (in geographical area and personal nexus to the employee) of the restriction.
Broadly speaking, an employer may only legitimately protect trade secrets, confidential information and connections and the stability of its workforce. Non-competition clauses prevent the ex-employee from working for or establishing a competitor, while non-solicitation clauses prevent them from soliciting clients, customers and employees. The employer may also try to impose a non-dealing clause, so that even if the ex-employee has not solicited the business, they cannot deal with a former customer or client who is known to them, in areas of business that would compete with their former employer. Garden leave is often used before covenants apply, as an employer who acts in breach of contract by dismissing without notice will find that the covenants are no longer binding on the employee.
Please click here for our Restrictive Covenants and Garden Leave Guide.