J M Finn & Co Ltd v Holliday

An employer may enforce garden leave during an employee’s notice period by injunction, but the injunction must be justified under the restraint of trade doctrine. The employer must identify a legitimate business interest and show that the period and scope of restraint are no more than reasonably necessary to protect it. The employee’s agreement to the contractual notice and garden leave provisions is relevant, but is not determinative. The court has greater flexibility with garden leave than with a post-termination restrictive covenant and may order a shorter period than the contractual notice period. A 12-month period was justified where the employer needed time to establish new client relationships and demonstrate satisfactory portfolio performance.

The claimant, an investment management and stockbroking firm, employed the defendant for many years under revised terms requiring 12 months’ notice and permitting garden leave. After resigning to join a competitor, the defendant was placed on garden leave. He then purported to accept an alleged repudiatory breach, relying principally on the withdrawal of access to internal morning market summaries.

The claimant sought to enforce the contractual restrictions and prevent the defendant joining the competitor or dealing with the claimant’s clients during the notice period. An interim injunction had been granted by Michael Bowes QC. The issues were whether the defendant had been constructively dismissed, the proper approach to enforcing garden leave, and whether a 12-month injunction should continue.

1. Constructive dismissal. The withdrawal of access to the claimant’s morning market summaries was inconvenient but did not seriously damage the relationship of trust and confidence. The claimant had reasonable and proper cause to withdraw access while the defendant was on garden leave, was not advising clients or trading, and had inactive FCA registration. The defendant had not established a repudiatory breach.
2. Garden leave and restraint of trade. A contractual garden leave provision operates during the employment relationship and need not itself be justified under the restraint of trade doctrine. However, where the employer seeks an injunction preventing the employee from joining a competitor during the notice period, the injunction must be justified in accordance with that doctrine. The employee’s agreement to the clause is relevant but is not the primary consideration.
3. The employer must demonstrate a legitimate interest to protect and show that the injunction goes no further than reasonably necessary. The court may refuse relief where damages are adequate or may reduce the period and scope of the injunction. It has greater flexibility when enforcing garden leave than when enforcing a restrictive covenant.
4. The claimant’s legitimate interest was its customer connection. The evidence showed that 12 months was the minimum period reasonably required to establish relationships between replacement investment managers and clients, allow portfolio performance to be assessed, and protect the claimant against immediate solicitation by the defendant.
5. Damages would not be adequate because losses from transferred clients, potential clients and consequential departures would be difficult to quantify. The defendant would suffer no disproportionate financial harm because he would receive salary and benefits and could maintain his market knowledge through available resources.
6. The interim order was continued until expiry of the 12-month notice period on 4 July 2014.

The judgment records an interlocutory injunction granted by Michael Bowes QC, sitting as a Deputy High Court Judge, on 16 August 2013. Following the expedited trial, the injunction was continued until 4 July 2014.