All you need to know about Hong Kong's Garden Leave | Article – HSBC VisionGo
What exactly is a garden leave, and do you really need a garden?
The Origins and Meaning of “Garden Leave”
Popularised by the 1980’s satirical sitcom “Yes Minister”, the term ‘gardening leave” or “garden leave”, is now frequently used in the United Kingdom, the Commonwealth, and former British colonies such as Hong Kong. It’s used to denote a situation that arises when employees are instructed to stay away from the workplace either after handing in their notices, or if they are terminated. It is generally accepted that during this period, employees continue to receive all their usual benefits, such as health insurance, and are paid their full salary. To the employee, it will sound like a cushy paid holiday, but in reality garden leave exists primarily to protect the employer from the possibly damaging actions of a leaving employee. The etymology of the phrase stems from (yes, we meant to) a semi-derogatory term used to evoke the image of British civil servants on suspension at home in limbo with nothing to do but tend to their gardens.
Garden Leave 101
There are two ways to put an employee on garden leave in Hong Kong.
- Put a clause in the employment contract. This is the most straightforward and fuss-free way to do it. Exercise of the clause after the employee has given their notice or rightly terminated is at the employer’s discretion.
- Alternatively, if a garden leave clause isn’t included in the employment contract, the employer may only initiate garden leave with the employee’s consent.
Garden leave clauses are legal, and popular, in Hong Kong, but they are all subject to tests of enforceability. If the clause is challenged, for a court is to uphold the clause, a garden leave must:
- Serve to protect a legitimate interest; and
- Last for a reasonable period.
The test is left intentionally vague to allow the courts to take into account all the factors surrounding any issues that arise. Legitimate interest can include the protection of an employer’s goodwill fostered with clients and suppliers; to ensure the stability of an employer’s workforce; or to prevent the dissemination of any confidential information that the employee might otherwise possess.
Fencing Off the Competition: Why Do Employers Bother Having Garden Leave Clauses?
Although a paid holiday probably sounds grand to most ears, the true beneficiary of the garden leave is the employer. The cost of an employee’s salary and benefits paid during the garden leave period may be vastly outweighed by ultimately protecting the trove of knowledge of the employer’s affairs and transactions.
During the garden leave, the employee that has given his or her notice must adhere to the same terms of employment that were originally agreed to, which would include the boilerplate alphabet soup of contractual clauses such as covenant not-to-compete clauses (CNCs), non-disclosure agreements (NDAs), non-solicitation clauses (NSCs) and more. The employee—restricted to ‘gardening’—will cease to have knowledge of ongoing information about the nature of the company’s work and therefore prevent competitors from gaining an unfair advantage in the market.
For the employer, there is absolutely no reason why a garden leave clause shouldn’t be included in any employment contract. The clause gives the employer the option to put the employee on garden leave and can only be exercised by the employer.
Garden Leave and Post-Termination Restrictive Covenants
Garden Leave does not operate alone, instead it operates alongside the aforementioned contractual clauses that form a class of covenants (legal-speak for a type of agreement) that restrict employees from doing certain things after they are terminated. The principle behind post-termination restrictive covenants are wholly in line with the foundation behind the garden leave—to protect the business. While highly beneficial to the employer, these covenants can be incredibly unfair to the employee.
For example, covenant not-to-compete clauses (CNCs) prevent the employee from seeking employment in the same field after termination, while receiving no remuneration or benefits. In Hong Kong, a three-month restriction is generally acceptable, but the period can be up to six months. Additionally, a CNC may be applied to the entirety of Hong Kong if the employer passes the test of enforceability (see above), meaning that the employee could well be agreeing to six months of unemployment. Non-disclosure agreements (NDAs), and non-solicitation clauses (NSCs) aren’t as restrictive to the employee but any employment contract that has a CNC will likely have an NDA and an NSC.
A balance of protection must be struck between the employer and the employee in order for an employment contract to appeal to both parties. Post-termination restrictive covenants will sway the balance towards the employer, and possibly dissuading the employee from signing on the dotted line. Here is where garden leave comes in as the carrot to the big, corporate stick. In the majority of cases, the garden leave period affords an employee the luxury to search for continuing employment, while simultaneously protecting the employer’s interest. A prospective employee may find that the garden leave period sweetens the deal considerably after being repeatedly subjected to a smattering of post-termination clauses. Keep in mind that the period of restriction set out by a CNC is reduced by any period of garden leave served by the employee. However, garden leave clauses won’t do any justice to employees’ whose income is derived primarily from commissions or other incentive-based remuneration, as they won’t be working during the garden leave.
To summarise, garden leave clauses and post-termination restrictive covenants are one of the many forms of parallel negotiation and contracting when there is a possibility of an employment relationship. Together they form one of the many tools that protect both the employer’s business and the employee’s livelihood.
This article does not constitute legal advice.