In some situations during employment - especially at the end of it - you can agree to pay an employee to stay at home instead of having them come to work. This is commonly called “garden leave” (or “gardening leave”).
This means they’re still an employee and will be paid in full, but they aren’t required to attend work. It gets its name in reference to the employee staying home to tend the garden (or whatever other pastime they prefer) rather than coming to work.
The Ministry of Business, Innovation and Employment (MBIE) defines garden leave as “a period when an employee remains employed, and receives full pay, but does not report to work.”
It is not a term defined in the Employment Relations Act, but is an agreement between an employer and employee that the employee won’t come to work for a period of time.
Garden leave is commonly used in New Zealand in situations where it’s better for the employee not to be at work, either because they are working out their notice period (also called “leave in lieu of notice”), or they’re not needed at work for a set period, e.g. there is a temporary break in operations.
The period of garden leave must be specified so you can’t place an employee on gardening leave indefinitely or for an extended period of time.
Garden leave differs from other similar situations, such as:
Garden leave is mostly used during the notice period (either for some or all of it), especially in instances of:
Garden leave is also useful when:
It can be tempting to use gardening leave instead of suspending an employee. However, suspension can only be used in a narrow set of circumstances and you must have a very good reason to suspend an employee. You also must follow the correct process in proposing the suspension to the employee, giving them a chance to provide feedback, and then considering their views in making your decision.
Garden leave is an agreement between the employer and employee, whereas suspension is a proposal that the employee must be consulted on.
Our article gives you more insight into the dos and donts of suspending an employee.
Garden leave can only be used if either:
It’s important to remember that during gardening leave, both parties are still in an employment relationship and all employment rights and obligations must be adhered to.
As the name implies, when an employee is on garden leave, they aren’t usually required to perform their normal role. However, they should be contactable during normal work hours.
You could have the person perform alternative duties instead of their usual role. We often see employers ask employees to finish handover notes, tidy up files or complete administrative work. The duties should be reasonable, within the scope of the employment agreement, and not demeaning. As the employee remains on full pay, the purpose of alternative duties is to keep them productively engaged while limiting their access to clients, colleagues or sensitive business information.
As the person is still employed, they can’t go off and start working for another employer, but they could start job hunting.
Whatever you ask the employee to do (or not do) during garden leave, it’s best to put it in writing so there’s no confusion.
Restraint of trade clauses only take effect after an employee’s employment ends, but case law has established that if the employment agreement contains both a restraint of trade clause and a garden leave (leave in lieu of notice) clause, the period the employee is on garden leave may be taken into consideration in deciding whether, and for how long, a restraint of trade should be enforced.
So putting an employee who is covered by a restraint of trade on garden leave doesn’t necessarily mean you will get extra protection.
Read our in-depth post on restraint of trade clauses.
Garden leave is not a way to punish an employee or get around providing them with their minimum employment rights. If an employer is found to have misused garden leave, they could open themselves up to personal grievance or other legal claims.
For example, if you impose garden leave without a clear contractual right to do so, or without mutual agreement (ideally in writing), an employee could argue they have been unjustifiably suspended or constructively dismissed.
Other common mistakes include:
We recommend you seek professional advice before adding garden leave clauses to your employment agreements or before putting an employee on garden leave if there is any disagreement.
If the employee is ending employment, you can choose to pay them in lieu of notice, so long as there is a provision for it in the employment agreement or the employee agrees to it.
This means employment finishes on an agreed date and the employee doesn’t work all or some of the notice period. You must pay them a lump sum for the notice period they did not work, as well as their final pay. Alternatively, you can agree to waive the notice period and the employee would not be paid in lieu.
You could also allow the employee to use some of their annual leave during the notice period, e.g. if they want to take a short holiday before looking for a new job.
There may be (rare) occasions when an employee doesn’t want to go on garden leave. They may want to finish off some important work, are concerned about how being placed on garden leave will appear to others, or don’t want to stay bound to their employment agreement during the notice period.
If there is a garden leave clause in their employment agreement, they have already agreed that you can direct them to stay at home. But if there isn’t, you cannot force them to not work if they don’t agree. Doing so could lead to a personal grievance claim.
If the person doesn’t agree to garden leave, we recommend keeping lines of communication open. Give them some time to think about it. If they want to finish a piece of work, explore options for doing so from home or finding mutually agreeable alternative duties. You could also reassure them that being placed on garden leave will remain confidential.
You could also consider paying them in lieu of notice rather than having them on garden leave. The benefit of this approach is that it provides a clean and immediate break. The potential risk is that you lose the ability to restrict their activities during the notice period, meaning they can immediately begin working for another employer.
Garden leave clauses aren’t mandatory in employment agreements but including them ensures you can lawfully direct an employee to take garden leave, if the time comes. Whether you need to include a general or specific clause depends on your organisation and the employee’s role.
If you need any help drafting clear, robust employment agreements, get in touch with MyHR. Our on-call HR team are experts at tailoring employment agreements for your specific requirements, all delivered ready for digital signatures through our powerful HR platform.