Employer’s rights

Is there such a thing or is the tide turning?

Consider the following scenario. A senior employee signs a two year fixed term contract but, eight months later, he tenders his resignation after accepting alternative employment with a competitor. Should the employer accept the resignation and potentially lose the valuable client networks that the employee may have? Or refuse the resignation and enforce the terms of the employment contract.

In a recent NSW case a stock brokerage refused to accept a stock broker’s resignation and successfully obtained an injunction preventing the broker from working for the competitor for his notice period of six months (Purcell vTullett Prebon (Aust) Pty Ltd [2010] NSWCA 150). The broker was placed on “garden leave” for that period, and just before the six months expired, the brokerage directed the broker to return to work. The broker refused and the brokerage successfully sued the broker for damages.

The decision signals a real change in the direction of the courts in protecting employers’ interests under employment contracts.

For Employers, this case means that where an employee breaks their employment contract the Court may enforce a non-solicitation restraint and may stop an employee working with a competitor for a specific timeframe. A properly drafted employment contract containing a ‘garden leave’ provision can be used to stop an employee moving straight to a competitor, thereby protecting client networks and confidential trade and client information on behalf of employers. A “garden leave” clause is one that allows an employer to direct an employee to cease all duties during their period of notice – their employment and their pay continues. This prevents an employee working with a competitor or acting against the employer’s interests until their contract expires. Garden leave is generally enforceable if an employment contract has been carefully worded to allow it. However, it may be unenforceable if the employee has particular skills that he or she needs to keep in practice or if remuneration is dependent on work performed.

For Employees who are entering into an employment contract, they should negotiate any restraints carefully, and check whether their contract contains a ‘garden leave’ provision. Such a provision may require an employee to take leave following notice of termination for the remaining period of the employment contract, preventing the acceptance of new employment.

Elringtons can assist you with advice or information regarding employee and employer rights and responsibilities under employment contracts.