Those who stand and wait also serve: Rights of employers to suspend or place employees on gardening leave when the contract of employment is silent

Key Points
  • It has long been thought that employers need to spell out in their contracts (or for it to be implied from other clauses) that they have a right to suspend or place an employee on gardening leave. Two recent cases say otherwise.
  • (Case 1 – Suspension) The Federal Court found that an employer had the right to suspend an employee on pay while allegations against the employee were being investigated.
  • (Case 2 – Gardening leave) The NSW Supreme Court found that an employer had the right to protect its confidential information by placing an employee on gardening leave after the employee had notified of an intention to resign and join a competitor.
The cases

Avenia v Railway & Transport Health Fund Ltd [2017] FCA 859

In October 2016, Dr Avenia, an experienced dentist, sold his practice to a chain of dental practices and became an employee of the chain with management responsibilities. Less than six months later - after several complaints about his abrasive demeanour – Dr Avenia was suspended from duties with full pay while an investigation into his behaviour was conducted. 

Dr Avenia brought an adverse action claim which, amongst other things, argued that as the contract was silent on suspension there was no right to suspend and that the suspension was not a reasonable direction in the circumstances. 

The Federal Court found otherwise; determining that the employer had a common law right to temporarily suspend Dr Avenia on full pay during the investigation as the employer had determined that the continued performance of duties by Dr Avenia was inconsistent with its interests. 

In particular the short term suspension while the employer investigated was consistent with its duty to enquire into allegations of inappropriate behaviour that appeared to constitute a risk to the safety, health and welfare of company staff and/or its duty to provide a safe place of work for its staff. 

Grace Worldwide (Australia) Pty Limited v Steve Alves [2017] NSWSC 1296

In July 2017, Mr Alves – then one of three national managers for his employer – gave notice of resignation and his intention to become CEO of one his employer’s principal competitors.

Alves had commenced employment with Grace in 2010 under a contract of employment that required 3 months’ notice and included post-employment restraints.

He was promoted at some point between 2010 and July 2017, no new contract was entered into at the time of promotion and Alves formed the view that his old contract did not apply due to changed circumstances. There was some back and forth between Alves and his employer about this, during the course of which Grace became concerned about Alves’ access to its confidential information.

Grace directed Alves to complete the notice period as paid ‘garden leave’ despite the contract being silent on whether it had that right. Grace also sought to rely on the restraints and swiftly brought a case in the Supreme Court to stop Alves taking up his post with the new employer. Alves argued in response that his being placed on garden leave was a repudiation of the employer’s obligation to provide him work.

The case turned in part on whether Grace was obliged to pay Alves and provide him with work, with the Court finding that Alves was not in the special class of persons who are entitled to both (more on that below) and that Grace was entitled to take the action it did because of an implied term that allowed it to be protected from contact between a competitor and its customers and employees. 

Does an employer have to give its employees work and pay?

Both cases turned to some degree on whether it is reasonable for the employer to pay an employee or if it needs to also provide its employee with work. 

Not all employees are entitled to both – as Dr Avenie and Mr Alves discovered. Employers who are considering suspension or garden leave should consider if any of the following apply:
  • Is the employee a performer, writer or artist that will lose out if they don’t keep up a level of exposure to audience?
  • Will they lose income if they cannot work (for instance through loss of commission or performance bonus)?
  • Does the employee have a technical skill or knowledge base they need to keep current?

If one or more of the above apply caution should be exercised, particularly if the employment contract doesn’t expressly allow for suspension or gardening leave.

Lessons for Employers

While it is best if the employment contract spells out a right to suspend or place an employee on gardening leave, these cases show that there will be times when an employer can take those actions without an express right. The reasons for doing so need to be good – particularly for certain types of employee – and the steps leading up to the decision need to be reasonable.
 
The case of Dr Avenia should also be a warning for small business owners considering selling about the risks of selling up and becoming an employee.
 
Post by Catherine Pittaway, Phillip McKay and Sarah Jones.

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