Garden Leave; Mitigating The Legal Risks Of Employee Turnover For ICT Firms

ICT companies operate in a very fast-paced environment, where new technology, innovations and inventions are the order of the day and firms have to constantly find innovative solutions for their market in order to keep up. Obsoleteness is however not the only threat faced by ICT companies, they also have to grapple with the challenge of, high employer turnover, which is a common human resource concern for ICT companies

Just recently a report by Digital Oceans (a global tech firm) suggests that over a quarter of software developers who have been in the workforce for over a year have started a new job in the past year and that 42% of those who haven’t left their jobs yet are considering or may consider leaving their current jobs this year.

With these facts, the concern for ICT firms is not just the heightened human resource cost of finding suitable replacements but also a glaring legal challenge, of what to do, when the company has legitimate business interest to protect, which might be under threat, following the employee transitions.

How best should ICT companies protect their most prices business interest, trade secrets, inventions and innovations from exploitation by former employees? These article series will explore contractual measures available to employers to mitigate against the double threat posed by these circumstances.

The series will discuss the provision of garden leave in employment contracts as a possible solution and contrast it with the use of restrictive trade covenants, while explaining the pros and cons of each proposed legal solution.

In this article we explore garden leave provisions as a way of mitigating the legal risk of employee turnover, and explain the disadvantages and advantages of using this provisions in contrast to non-compete clauses and the enforceability of the contract.

Garden Leave Clauses in Employment Contracts

Employers in the ICT industry should insist on providing their employees with well detailed employment contracts that cover post termination covenants, which expressly require employees to refrain from disclosing company secrets to third parties, to refrain from setting up competing business entities, and for top-level resources, prevent them from soliciting clients and poaching other employees after the termination of their employment.

The Contracts could provide restrictive trade clauses or alternatively Garden Leave clauses or both, depending on the circumstances, in order to achieve this.

Garden leave is a term used to reference the practice of having an employee work away from the office with limited access to the employer’s resources following a notice of termination or resignation.

Garden leave provisions may be included in employment contracts or separation contracts, depending on the goal that the parties want to achieve. These include:

a) Protecting the Employer’s Legitimate Interest

Garden leave provisions include terms that restrict the employee from engaging in competing business or practice with those of the employer during the pendency of the garden leave period. Non -solicitation clauses may also be included to limit the employee from contacting clients of the employer or from poaching other employees.

Garden leave provisions in this case prevent an employee from, leaving the employ of his employer and immediately setting up or joining a competing business, using information or trade secrets of his employer or sharing that information to the latter’s detriment.

Employers may elect to provide for a garden leave period long enough to thwart any of these threats from affecting their business, should they materialize.

b) Safeguard against possible detrimental behavior of the employee

An employee’s improper conduct, could be causing other employees distress or discomfort and therefore garden leave provision could act to require that the employee denied access to the office and to certain other resources to safeguard against the bad conduct.

Rights and Obligations Provided by Garden Leave

A person on garden leave is still considered an employee of their employer and therefore continues to enjoy the benefits of the employment contract, such as the basic salary, fringe benefits and in some cases bonuses.

Equally, the person is bound by a corresponding obligation to continue with his contractual duties as per his contract, but in some pro-employer contracts, the employer may reserve the right to assign those duties to the employee within the garden leave period.

It is common to have a garden leave provision that includes non-compete clauses, terms on confidentiality, restrictions on anti-poaching and non-solicitation clauses. The Employee is still obligated to the employer and expected to maintain loyalty during the continuation of the garden leave.

Garden Leave as an Alternative to Non-Compete Provisions

Garden leave also sometimes include restrictive trade provisions that limit the employee from engaging in competing business with the employer or from, soliciting employees and clients away from the employer.

However, the Kenyan courts’ attitude on non-compete and restrictive clauses is quite clear

(Read The Courts’ Decision on Covenants in Restraint of Trade in Employment Contracts).

Garden leave provisions offer a good alternative to non-compete and restrictive trade clauses often so when the employer is seeking to protect legitimate business interest. The courts might be more tolerant to garden leave provision as opposed to restrictive trade provisions because garden leave periods are usually shorter (1-3 months) than the typical non-compete 6months-12 months’ period.

Also it may be easier for an employer to enforce garden clauses as opposed to restrictive trade provisions because of the continuing obligation of the employee towards his/her employer contrasted to the non-existent relation where non-compete clauses are used in separation agreements.

The Advantages of Garden Leave Provisions

From the discussion above we can pick out some of the advantages of using garden leave.

First garden leave clauses might be comparatively easier to enforce than non-compete clauses.

Secondly it offers a more orderly transition following the termination of employment contract contrasted with transition offered by the shorter 1-month notice period that are common to most employment agreements or separation agreements.

Thirdly it is less likely to be overused by employers to stifle competition, compared to non-compete provisions, because of the cost implication.

Lastly, garden leave offers added protection to employers who have the ability to include restrictive clauses within the period of garden leave to prevent the employee from revealing critical information, soliciting clients, poaching employees and working for a competitor against the employer’s best interest

Limitations of Garden Leave Provisions

Without a doubt garden clauses are expensive for an employer as they require them to continue to remunerate an employee who does not perform any work.

Secondly, the protection period offered by garden leave provisions to safeguard against completion is shorter than that provided by non-compete period, which normally exclude an employer from competing with his employer for up to 6 months at least.

Thirdly, case law on garden leave provisions is not sufficiently established neither does the Employment Act specifically provide for it, creating an un-certainty in the enforcement of garden leave provisions

Also the fact that an employee is still bound by his employment contract during garden leave may raise interesting questions about their constitutional right to freedom from servitude, especially when the employee does not want to continue to be bound.

Conclusion

The Employment Act (2007) does not make a provision for Garden Leave, however the law of contract allows for its use where both parties are accepting of the provisions and agree to be bound.

Garden Leaves presents a good common ground for both the employer and employees especially in negotiating post-termination terms. It will be quite interesting to see how the Kenyan courts develop jurisprudence surrounding garden leave as their use become more common in employment practice.

Published on Aug. 22, 2024, 1:10 p.m.