Home - Take care when placing employees on gardening leave

UpdatesJun 01, 2018

Take care when placing employees on gardening leave

In Grace Worldwide (Australia) Pty Limited v Steve Alves (2017), Mr Alves, a general manager of Grace Worldwide (Australia) Pty Limited (Grace), resigned his employment to become CEO of a competitor.

By Kelly Godfrey

In Grace Worldwide (Australia) Pty Limited v Steve Alves (2017), Mr Alves, a general manager of Grace Worldwide (Australia) Pty Limited (Grace), resigned his employment to become CEO of a competitor.

When Grace originally employed Mr Alves in January 2010, he held the position of National Manager, Quality, Risk and Environment. The employment was documented in a contract dated 11 January 2010 (2010 Contract). When Mr Alves resigned in 2017, he was one of three national managers, with the title General Manager Operations.

Grace placed Mr Alves on gardening leave for his 3-month notice period, which meant Mr Alves was not permitted to attend work or perform any duties. He was prevented from having any dealings with Grace’s staff or clients and had to return all confidential information, intellectual property, his laptop computer and his mobile phone.

Mr Alves alleged that Grace had repudiated the 2010 Contract by:

Mr Alves alleged that because of Grace’s repudiation, he was no longer bound by a 12-month post-employment restraint preventing him from joining the competitor.

Grace argued that while there was no express provision in the 2010 Contract permitting it to place Mr Alves on gardening leave during his 3-month notice period, it was implied. Grace argued that it only had an obligation to pay Mr Alves his remuneration, not to provide him with work and that the requirement to return the mobile phone was not a repudiation.

The verdict

The NSW Supreme Court found:

Lessons for you

Employers should ensure their contracts of employment contain an express term permitting them to place an employee on gardening leave. This is useful for employers to use during notice periods and where the employer wants to stand down the employee to conduct an investigation. This is much safer than relying on a court to find an employer may have an implied right to do so in the particular circumstances.

Prior to issuing a direction to an employee to return company property while they are on gardening leave, you should check whether this might amount to a repudiation of the employee’s employment contract.

An employee on gardening leave remains employed and entitled to receive their normal remuneration package. If you require property to be returned that constitutes part of the package, this may in some circumstances result in the repudiation of the employee’s employment contract. As such, a careful examination of the facts is required.

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