Employee's duty of fidelity while on garden leave

15 January 2013

In Imam-Sadeque v Bluebay Asset Management (Services) Ltd the claimant was a senior employee who wanted to leave his employer and negotiated terms on which he could do so. The compromise agreement stated that he was to arrange for a smooth handover of his work and remain an employee for six months ‘garden leave’. Then, if he had not breached the compromise agreement terms, on termination he would be treated as a ‘Good Leaver’ for the purposes of the employee Bonus Plans.

During his ‘garden leave’ he was in regular communication with the start-up business that he intended to join which was in direct competition with his current employer. He also assisted in recruiting employees from his current employer.

This was in breach of non-compete and non-solicitation covenants in his employment contract. It was also in breach of the unwritten (common law) duty of fidelity that every employee has to their current employer.
He tried to argue that the compromise agreement had superseded his employment contract and that, because he was on ‘garden leave’, his duty of fidelity must be less. The High Court disagreed. The compromise agreement made it clear that his obligations under his employment contract were continuing. Furthermore, one of the common purposes behind putting an employee on ‘garden leave’ was to secure their loyalty during their notice period.

He was in breach of contract, he was not a ‘Good Leaver’ and his claim to benefits under the Bonus Plans failed.

Points to note:

• The combined use of a compromise agreement and a period of ‘garden leave’ may be a good way of managing the departure of a senior employee. However, it is important that the terms of the compromise agreement should make it quite clear that, although not required to work during the ‘garden leave’ period, the employee’s other contractual obligations continue.

• The claimant also tried to argue that it was an unlawful ‘penalty’ that he should forfeit his benefits under the Bonus Plan in this way. Again, the court disagreed. The compromise agreement had been freely negotiated. It gave him additional rights under the Bonus Plans (by continuing his employment for six months until the year end) but required him to continue to perform his contractual obligations in the meantime. He had only forfeited the benefits because he had failed to comply with his obligations.

Again, it is important when drafting compromise agreements to make sure that any fresh (or continuing) obligations are imposed in consideration for fresh benefits.

Other articles related to the UK Employment Law Update for Janaury 2013:

> Termination date: Employee must accept employers repudiation in order to terminate contract

> Redundancy dismissal while on maternity leave - is it fair?

> Victimisation: Was offensive comment a 'protected disclosure' or racist act?