Resignations: case study

Amy Nash and Sarah-Marie Williams of Clyde & Co LLP conclude a series of articles on resignations with a case study that looks at how employers can protect their business in the event of an employee resignation. By invoking a garden leave clause an employer can prevent a departing employee from having access to confidential information during his or her notice period. Restrictive covenants can also be used to limit an employee's work-related activities post resignation, but should go no wider than necessary to protect the employer's legitimate business interests. 

David works for Safecover Ltd, an insurance company in London.  He has just given notice of his resignation as he has been offered a job with Safe Insurance Co, an insurance company in Manchester.

David's manager, John, is concerned about David joining a potential competitor. He is worried about David having access to Safecover's customers and customer information during his notice period and believes that he will take its customers with him to Safe Insurance Co when he leaves. John asks the HR department to check David's contract of employment. The contract contains a garden leave clause and a set of restrictive covenants, including a non-competition covenant and a non-solicitation of clients covenant. John is also aware that David has a company car and mobile phone, which his contract states he is entitled to use for business and personal reasons.

John does not want David in the office during his notice period, in case he uses the time to access information about Safecover's customers. Can Safecover require David not to work his notice?

Yes. David's contract of employment includes a garden leave clause. Therefore, Safecover can require him to remain at home for all or part of his notice period, without being in breach of his contract. To invoke the contractual garden leave clause, Safecover should write to David, informing him that it is going to put him on garden leave and from what date. It should also set out David's obligations during the garden leave period and any restrictions that apply (for example a prohibition on contacting its employees and customers). Given that David will continue to be an employee for the duration of the garden leave period, Safecover should ensure that he continues to receive the salary and benefits to which he is entitled under his contract of employment.

Apart from garden leave, is there any other way in which Safecover could prevent David from working his notice?

Yes. Safecover could consider paying David in lieu of his notice period. Safecover should check whether or not David's contract gives it an express right to make a payment in lieu as an alternative to allowing him to work notice. If it pays him in lieu of notice without an express contractual right to do so, or without his agreement, it will be in breach of contract and he could seek to argue that he is no longer bound by the restrictive covenants in the contract.

John thinks that Safecover should be able to rely on a restrictive covenant in David's contract that states that David is "prevented from working for any of Safecover's competitors in the UK, on termination". John also thinks that Safecover can rely on a non-solicitation of clients covenant, which seeks to prevent David from taking clients with whom he has worked in the past 12 months to his new employer. Is Safecover likely to be able to rely on these restrictive covenants?

For the restrictive covenants in David's contract not to be void for being in restraint of trade and contrary to public policy, they must seek to protect Safecover's legitimate business interests and go no further than is reasonable to protect those interests. If the matter were to come before a court, the court would consider the restrictive covenants in David's contract by reference to Safecover's business needs and David's position in the company.

David's contract contains a non-competition covenant that seeks to preclude him from working for a competitor following termination, and a non-solicitation of customers covenant that seeks to prevent him from taking customers from Safecover. A non-competition restriction that seeks to prevent David from working for any competitor in the UK is unlikely to be enforceable as it would be too wide. A court is more likely to enforce a non-competition covenant if the restriction is for a limited period of time and the geographical extent of the restriction is limited to that necessary to protect legitimate business interests. Non-competition covenants are hard to enforce and are considered on a case-by-case basis.

A non-solicitation covenant that seeks to prohibit David from soliciting Safecover's customers with whom he has worked in the last 12 months before termination is more likely to be enforceable, provided that it is for a reasonable set period following termination. This will depend on the employee's specific skills and the threat posed to the business. A period of longer than 12 months is unlikely to be enforceable.

David is put on garden leave and John instructs the HR department to ensure that David returns his company car and mobile phone. What steps can Safecover take to ensure that David returns its property?

Safecover should have procedures in place to ensure that employees return company property on termination. Contracts should include a clause requiring employees to return all property obtained in the course of employment, on termination. They should also allow Safecover to make appropriate deductions from an employee's salary to cover the cost of its property in the event that he or she fails to return it.

During the garden leave period, David is entitled to all contractual benefits, which, in his case, includes personal use of his company car and mobile phone, as set out in his contract. If Safecover requires David to return his company car and mobile phone during the garden leave period, it will be in breach of contract. At the end of the garden leave period, Safecover should ask David to return the car and mobile phone to a particular manager.

If David fails to return its property on termination, Safecover should write to him, refer to the relevant contractual provisions and ask for its property to be returned. If David still does not return its property, Safecover may be left with no option but to write to him and advise him that it will take further action.

Sarah also works for Safecover and has just handed in her notice of resignation. Unlike David, she is not leaving to work for a competitor but has decided to go travelling. Sarah has been a good performer during her three years' service and, as her department is busy, Safecover wants her to work her notice period. It also wants her to use up some of her annual leave entitlement during her notice period. Sarah does not want to take holiday during her notice period. She would rather be paid for her untaken annual leave on termination.

Can Safecover require Sarah to take holiday during her notice period?

Under the Working Time Regulations 1998 (SI 1998/1833), in the absence of any arrangement to the contrary, Safecover can require Sarah to take holiday, provided that it gives her notice equivalent to twice the length of holiday that it wishes her to take. For example, if Safecover wants her to take one week's annual leave during the notice period, it must give her two weeks' notice. Although it is not a requirement of the Regulations, Safecover should give Sarah written notice that she must take holiday.

Safecover duly gives Sarah written notice that she must take one week's annual leave. When she receives this notice, Sarah's performance deteriorates and she is overheard making negative comments about Safecover to colleagues. This starts to impact on her colleagues' morale. How should Safecover deal with this situation?

Initially, Safecover should talk to Sarah on an informal basis. If she is told that her negative comments and poor attitude are having a damaging effect on morale, and that the decline in her performance is not acceptable, she may change her behaviour.

If Sarah continues to make negative comments and perform poorly, Safecover may be left with no option but to address the matter through its disciplinary and/or performance procedure, as it would have done had she not been working notice.

Next week's topic of the week article will be the first in a series on work-related stress and will be published on 8 February.

Amy Nash (Amy.Nash@clydeco.com) is a trainee solicitor, and Sarah-Marie Williams (Sarah-Marie.Williams@clydeco.com) a solicitor, at Clyde & Co LLP.

Further information on Clyde & Co LLP can be accessed at www.clydeco.com.