When is a 12 month garden leave clause reasonable?
The reasonableness of a restrictive covenant is highly fact specific. JM Finn & Co v Holliday is an example of an enforceable 12 month restriction.
Mr Holliday was an investment adviser for JM Finn & Co, a stockbroking firm. His contract of employment contained a 12 month notice period and a garden leave clause. It also contained specific non-solicitation covenants to apply during garden leave.
When Mr Holliday resigned, he was placed on garden leave and told not to contact any client, prospective client or investment manager at the firm. He claimed that JM Finn had breached his contract of employment (by refusing to forward him briefing notes summarising current market knowledge) and indicated that he would be starting work immediately with a competitor.
JM Finn applied for an injunction (interdict in Scotland) to enforce the restrictions and stop Mr Holliday from starting work. The High Court granted an injunction for the whole 12 month notice period. This was found to be reasonably necessary to allow JM Finn enough time to preserve the working relationship with Mr Holliday’s former clients. The Court noted that in the investment field demonstrating integrity, reliability and good performance takes time. There was also perceived to be a high risk of Mr Holliday enticing away clients if he was able to contact them around the time of his departure.
The High Court held that garden leave in this context must be justified on similar grounds as a restrictive covenant, because long periods of garden leave are capable of abuse. The employer must therefore prove that the injunction extends no further than is reasonably necessary to protect its legitimate business interests. In this case, the interest was maintaining a connection with clients.
12 months is a relatively long garden leave period but this case highlights that it can be reasonable. This will very much depend on the seniority and role of the employee and the sector in which they work.
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