Garden leave clause:

A garden leave clause is a clause which typically requires an employee to remain away from the workplace during part or the whole of their notice period either for termination of employment or dismissal. During such garden leave period the employer continues to pay the employee their renumeration.

The core function of a garden leave clause is to distance the employee from any confidential information such as trade secrets, contracts and intellectual property that they may have access to in the workplace, as well as to place distance between the employee and any clients, suppliers or other employees of the employer.

Garden leave clauses therefore mitigate certain risks, such as the risk that confidential information lands in the hands of competitors, that the employee utilises client and/or supplier information for a competitor’s benefit and that the employee or a competitor solicits other employees of the employer.

Garden leave clauses and the interplay between garden leave provisions and restraints of trade has been considered by the South African labour court in Vodacom Proprietary Limited v Motsa and Another (J 74/16) [2016] ZALCJHB (“Vodacom v Motsa and Another”). This article sets out the key principles established by Vodacom v Motsa and Another and the interplay between garden leave provisions and restraints of trade.

Vodacom v Motsa and Another:

In Vodacom v Motsa and Another, Vodacom brought an urgent application to the labour court to enforce a 6 (six) month garden leave period and a restraint of trade of a further 6 (six) months after the expiry of the notice period which was contained in the employment agreement of a Vodacom senior executive, Motsa (“Employment Agreement”).

The Employment Agreement also restricted G Motsa from taking up employment opportunities with Vodacom’s competitors within the geographic region of southern, east and west Africa for a period of 6 (six) months after the termination of the Employment Agreement.

The court dealt with both the concept of garden leave and restraints of trade in this case and highlighted certain important principles.

The Employment Agreement provided Vodacom with 3 (three) options in respect of the notice period:

  • Require G Motsa to work the notice period;
  • Require G Motsa to remain away from the workplace during the notice period but remain available to assist Vodacom and transfer his responsibilities to his successor/s (the “Garden Leave Option”); and
  • Making payment to G Motsa in lieu of notice.

The court found that Vodacom had elected the Garden Leave Option.

As far as the restraints were concerned, the court found that the ordinarily applicable principles applied. The court in this regard referred to the test established in the case of Basson v Chilwan and others 1993 SA 742 (A), namely –

  • Is there an interest of the one party, which is deserving of protection at the termination of the agreement?
  • Is such interest being prejudiced by the other party?
  • If so, does such interest weigh up qualitatively and quantitatively against the interests of the latter party that the latter should not be economically inactive and unproductive?
  • Is there another facet of public policy having nothing to do with the relationship between the parties, but which requires that the restraint should either be maintained or rejected?

The differences between garden leave and restraints of trade were also noted by the court, namely that the former renders the employee inactive while still paying him and the latter does not render the employee entirely inactive but no renumeration is paid to the employee during such time.

The court also visited foreign case law which supported the view that garden leave and restraints of trade should be treated separately from one another, however, when evaluating reasonableness of the restraint, the full period that the employee is kept out of the market should be considered. Therefore, the full period including both the garden leave period and the restraint of trade period must be considered.

In addition to the above, the court considered that having skilled individuals excluded from commercial activity for extended periods of time is contrary to public policy as this could cause skill atrophy, notwithstanding this, the high renumeration packages of executives and the proprietary interests the employer seeks to protect are also important considerations.

In light of, among other things, the fact that G Motsa had access to extensive information regarding Vodacom’s business resulting from his executive position in the company as well as Vodacom’s interests which it sought to protect, the court found the 12 (twelve) month restraint on G Motsa to be reasonable and granted Vodacom’s application.

Concluding remarks:

Garden leave clauses which require an employee to remain away from the workplace during part or the whole of their notice period are a useful tool to mitigate the risks associated with the resignation or dismissal of an employee who has extensive information regarding a company and could take such information to competitors.

However, companies which include garden leave clauses in their employment agreements must ensure that the restraints imposed by such clauses and any restraints of trade are reasonable when considered in aggregate.

Various factors may be considered to determine whether a restraint is reasonable, and employers should consider each employee separately as opposed to adopting a one-size-fits-all approach when determining the nature and length of restraints imposed on its employees.

VDMA’s team of experts is at your disposal for any labour law, restraint of trade or related assistance that you or your business may require.

Published 24 June 2022