The claimant was employed under a five-year fixed term contract which awarded him a guaranteed minimum bonus (GMB) of £400,000 per annum. The employer’s revenue declined and he was asked, along with other members of his team, to reduce the GMB.
He was given the choice of accepting a change to his contract or be dismissed. When he refused he was given notice, placed on garden leave and was later dismissed. His contract stipulated that the GMB was not payable during the period of garden leave. The claimant argued that the decision to place him on garden leave and the refusal to pay him the GMB amounted to a fundamental breach of contract.
The Court confirmed that while an employer must carefully consider the decision to place an employee on garden leave and also explain its reasoning, the employer here was justified in its actions.
Every employment contract contains an implied term that an employer will not act irrationally or perversely but the employer here had not done so. The High Court was not persuaded that the garden leave was used as a "weapon", and indeed the employer would have been happy to release the claimant.
Practical Lessons
Garden leave provisions typically become important when an employee wants to leave and join a competitor. The High Court here focused on the fact that the garden leave did not seek to stop the claimant competing but rather it was designed to provide some time to conclude the bonus dispute. But this decision stresses the importance of drafting contracts clearly.
Where appropriate, it should be clear that all bonuses will be discontinued during any period of garden leave. In the absence of such a provision there is an implied obligation on the employer to permit the employee to perform their duties as normal.
Further, employers must bear in mind their obligation not to act irrationally or perversely when making decisions in relation to garden leave. A decision to place an employee on garden leave to avoid the payment of a bonus, for example, would undermine the implied term of trust and confidence and so employers must be able to fully justify their decisions.
http://www.bailii.org/ew/cases/EWHC/QB/2017/2995.html
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