The Case

Mr Alves, a general manager of Grace Worldwide (Australia) Pty Limited (Grace), resigned his employment to become chief executive officer 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.

When Mr Alves resigned, Grace placed him on gardening leave for his 3-month notice period. This meant Mr Alves was not permitted to attend work or perform any duties, and he was prevented from having any dealings with Grace’s staff or clients. Mr Alves was directed 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:

• placing him on gardening leave;
• precluding him from earning a bonus as he could not perform work for the 3-month notice period; and
• requiring he return the company-supplied mobile telephone, which was part of his remuneration package.

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:

• Grace was not required to provide Mr Alves with work during the notice period – his position was not unique and the skills required were general management skills;
• Grace did not repudiate the 2010 Contract by placing Mr Alves on gardening leave;
• Mr Alves would not have been entitled to receive a bonus even if he had worked during the 3-month notice period, as employees were required to complete a 6-month appraisal period under the 2010 Contract to earn a bonus;
• while Mr Alves was contractually entitled to a mobile phone, this was for work purposes (not unlimited private use) and given Mr Alves would not be performing work during his gardening leave, he did not require the mobile phone;
• any loss of value to Mr Alves associated with the failure to provide a mobile phone was so minimal, it did not amount to a repudiation of the 2010 Contract; and
• Grace had not repudiated the 2010 Contract and while the post-employment restraints were enforceable, the 12-month duration was not reasonable. As such, pursuant to the Restraints of Trade Act 1976 (NSW), the Court read down the restraint to apply for only 6 months.

The Lessons

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.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.