Posted by Gemma Ospedale, Partner
On 1 September 2016 Withy King LLP merged with Royds LLP. The trading name for the merged firm is Royds Withy King. All content produced prior to this date will remain in the name of the firms pre-merger.
Meaning of garden leave
In Ashcourt Rowan Financial Planning Limited v Hall the High Court has given some guidance on the meaning of garden leave in a case in which this was interlinked with the operation of post termination restrictions.
Mr Hall was a Senior Financial Advisor with ARFP. His contract contained a garden leave clause which enabled the company to require him not to perform any duties, or only some specified duties, to remain away from company premises and prevent him from contacting customers, clients or staff. This clause was described as the garden leave period. Mr Hall’s notice period was 6 months.
Mr Hall also had a post termination restriction for a period of 6 months following the end of his notice period which prevented him from being “employee, manager, officer, director, agent, consultant, contractor or partner of any other person, firm, company or organisation directly or indirectly engaged or concerned in any business or activity which competes directly with” the company.
When he resigned on 6 months notice, the arrangements for his notice period were that he would work mainly from home, and on a handover plan, as part of which all client meetings would be attended by another financial planner. He pointed out in writing that any period on garden leave should be deducted from the period of his post termination restrictions, to which he was informed that he was not on garden leave and that the restrictions would run from the end of his notice. When he accepted employment with another financial services company as a director a month after his notice expired, following which a number of his clients and other employees left ARFP to work for this new company, ARFP sought an injunction to enforce the covenants. Mr Hall argued not only that they were unenforceable but also that they should be reduced by the period he had served on garden leave.
The High Court held that he had not been on garden leave. It held that whatever the contract decided was a garden leave period, the normal meaning of garden leave was a time when the employee was not required to carry out any work and may effectively be sitting in the garden. He was therefore found not to have been on garden leave on the basis that he had been carrying out work at home and working on a handover plan. Consequently no period of his notice would be off-set against the restrictive covenant.
The non-competition restrictive covenant was anyway not upheld. The Judge considered it was too wide and that it was aimed at a wider field than just direct competition because it prevented him from being concerned in any business that was in competition, not only with ARFP but also its associated companies. It did not define the specific activities in which Mr Hall himself had been involved as being the aspects in competition with the company. Therefore even if Mr Hall had only been involved in a management role, compliance activities or research, which would not do any damage to the employer’s legitimate business interest, he would still be in breach of the restriction.
This is a classic example of a senior employee where a restrictive covenant, even for a relatively short period of 6 months, was found to be unenforceable because it was drafted too widely. The non-solicitation and confidentiality clauses were not challenged in the Court, only the non-competition clause.
This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.
For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.
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