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Garden Leave and Gandhi

“Indolence is a delightful but distressing state; we must be doing something to be happy.” Mahatma Gandhi.

One of the mysteries of garden leave is why this area of jurisprudence exists at all. At least from the perspective of this self-employed, occasionally indolent barrister – for whom paid holidays are an unrealisable dream – the prospect of being paid (often a substantial salary) for months on end to do nothing sounds too good to be true. What’s not to like?

Fortunately for employment lawyers, however, there is the occasional executive of ambition or industry who objects to months of enforced leisure, thereby providing work for lawyers and generating the occasional interesting case. On 8 November 2013 Mrs Justice Simler handed down judgment in one such case: JM Finn & Co Ltd v Holliday [2013] EWHC 3450 (QB): for judgment, click here.

The Defendant was, to use his own self-description, an old fashioned stockbroker. His employment contract was subject to a 12 months’ notice provision and an express garden leave clause. After he had resigned and been placed on garden leave, he sought to negotiate an early exist, in order that he might join a competitor. His employer indicated that it was unlikely that it would agree to his early departure. The Defendant then purported to resign with immediate effect to claim constructive dismissal, relying on the employer’s decision to stop providing him with daily emails that contained a digest of information from the financial press and sell-side broker publications. The Defendant characterised these emails as an important tool of his trade. (Simler J ultimately rejected the claim that he had been constructively dismissed, holding that the Defendant had overstated the importance of the emails in order to “engineer” a constructive dismissal).

After the Defendant failed to provide any requested undertakings, the Claimant employer instituted proceedings and sought an injunction to prevent the Defendant from joining his prospective new employer. Following a contested interlocutory hearing in August 2013 Michael Bowes Q.C. (sitting as a Deputy High Court Judge) granted an injunction pending a speedy trial. The speedy trial took place almost 4 months into the 12 month period. The principal issue to be determined was whether the existing injunction should be continued beyond the trial date, and if so for how long.

Simler J’s judgment is of interest for at least the following reasons:-

(a)    She upheld the Claimant’s claim and granted an injunction for the entirety of the 12 month period. The conventional wisdom is that a period of garden leave ought to be relatively short, with a maximum of 6 months: see e.g. Brealey and Bloch, Employment Covenants and Confidential Information: Law, Practice and Technique, 3rd Edition, at para. 5.108. There is only one other reported case in which a 12 month garden leave injunction has been upheld, Tullett Prebon Plc v BGC Brokers LP [2010] IRLR 648. The Holliday case illustrates that with appropriate evidence regarding what is required for the reasonable protection of a protectable interest (in this case, trade connection) there is no reason why a longer period of garden leave will not be enforced.

(b)   The case is a relatively rare example of a garden leave injunction being granted after a final hearing: the vast majority of the cases are interlocutory decisions. In Dyson Technology Ltd v Ben Strutt [2005] EWHC 2814 (Ch), a post termination covenant case, Rattee J held (at the conclusion of a speedy trial) that express or implied negative covenants would in general be enforced by injunction without proof of damage by the Claimant, because of equity’s perception that it is unconscionable for a defendant to ignore his bargain. It would only be in exceptional cases where a defendant could prove such hardship that it would be unconscionable for an injunction to be granted that it would not. Simler J held that that approach was not applicable in the context of garden leave injunctions:  the decision whether or not to grant an injunction had to be considered in the light of restraint of trade principles, because of the scope of abuse by an employer: see paragraph 57. She held that the correct approach (even at the final injunction stage) was that identified by Jack J in Tullet Prebon.

(c)    Simler J’s judgment emphasised the differences between post termination restrictions and the contractual provisions that underpin garden leave injunctions. Post termination restrictions obviously have to be justified in familiar ways as at the time they are entered into, in the light of restraint of trade principles. In contrast, there is no need to justify an express contractual garden leave provision or an express or implied covenant preventing an employee from working for others during the currency of the employment relationship. The restraint of trade doctrine comes into play instead at the point when an injunction is sought to enforce or aid a period of garden leave (para. 57).

(d)   Similarly, in contrast with a post termination restraint which is either enforceable or not, the court has a discretion to “whittle down” the terms of a garden leave clause imposing in an appropriate case a period of garden leave shorter than that envisaged by the garden leave clause itself (para. 59).

(e)    The judgment illustrates the importance, in this area of the law, of adducing evidence about protectable interests and any relevant period of restraint. The evidence indicated that it took a long time to lay and entrench the foundations of a relationship between client and stockbroker because contact tended to be irregular and there were risks associated that trying to accelerate the process in a way that might appear pushy or conducting a hard sell. The personal chemistry that is an important aspect of establishing a relationship will exist or not more or less immediately; but demonstrating integrity, reliability and a good investment performance take time. There were a significant number of former clients who were undecided about whether to stay with the Claimant, and a strong risk that that they would succumb to the Defendant’s attempts to woo them (on behalf of his prospective new employer) if permitted to do so in the immediate or short-term future. In the circumstances the Claimant had a legitimate interest to protect and 12 months was the minimum period required to protect the Claimant from sustaining the damage identified (para. 74).

In seeking to oppose the claim, the Defendant argued, to no avail, that damages would be an adequate remedy, that clients’ interests would be prejudiced if the injunction were continued,  and sought to rely on alleged reputational damage that he said he would suffer. He did not seek to quote Gandhi (who was of course himself a lawyer, having been called to the Bar at Inner Temple in 1891). He was probably wise not to: Holliday illustrates that in an appropriate case even the most work-loving of individuals will be consigned to potentially prolonged periods of enforced idleness by way of a garden leave injunction.

Daniel Tatton Brown, instructed by Gary Freer of Bryan Cave LLP, acted on behalf of the successful Claimant. Daniel has for many years been cited in the directories as a leading employment junior. The most recent edition of Chambers and Partners refers to his “broad based employment practice… founded on his core expertise in relation to restraint of trade issues”. He also appeared in another leading garden leave case, SG & R Valuation Service Co LLC v Boudrais [2008] IRLR 770 14, which was cited by Simler J in Holliday

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