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What the Qantas Loyalty & Virgin Velocity legal case reveals about gardening leave and what business owners need to know

Qantas recently won a last-minute injunction to stop the new CEO of Virgin Velocity, a former senior employee with Qantas’ loyalty scheme, from starting his new job. Qantas argued that the employee in question had access to highly sensitive information while onboarding with the company, only to switch to the Virgin rival shortly after.

In this case, Qantas argued that the employee in question didn’t complete the six month gardening leave period, as required by his contract, which would have kept him from sharing sensitive information with the rival airline in that period.

The case is complicated as the employee signed his contract in Singapore, not Australia, and also applied for anti-suit protection there to prevent Qantas from enforcing the extended start date.

This is a more extraordinary case of the application of gardening leave, but it demonstrates why gardening leave clauses exist and their purpose. They’re commonly applied for senior leaders in large companies, but are becoming increasingly common in SMEs as well.

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How does gardening leave work?

Generally, gardening leave involves paying the employee for the designated notice period, while the employee is stood down from their role.

In some situations, even if the parting of ways is amicable and the employee is the one who resigns, an employer may need to protect their business and its confidential information from an exiting employee, and therefore invoke gardening leave.

The obligations for an employee on gardening leave include:

  • They cannot attend their physical place of employment
  • They cannot continue to perform any activities that were previously their responsibility
  • They can only participate if requested to do so by their employer
  • They must remain available to their employer to allow for transitional issues to be addressed
  • They must still abide by the existing terms of their employment contract
  • They may be prohibited from communicating with other employees of their employer
  • They may be unable to take another position with a new company if it directly competes with their former employer
  • They may be prohibited from engaging in any other form of employment for the duration of the gardening leave

What’s the purpose of gardening leave?

The purpose of a gardening leave clause in a contract is four fold:

  1. It protects the best business interests of the employer
  2. It provides for confidential information to remain safely in the hands of the employer
  3. It creates a limited period of time during which the exiting employee cannot work for a competitor
  4. In the event that the disengagement is due to a cantankerous situation, it allows for both parties to separate while not creating financial hardship for either

All of these protections are valid and often necessary for employers who allow employees access to confidential business information, exclusive suppliers and financial assets and growth plans. The short gap in access to this information to an employee who is leaving the company can give the business owner time to make any necessary changes to accessing sensitive information. These changes may make the information currently known to an ex-employee less valuable and possibly moot.

This is not to say that the employee is untrustworthy, or has committed some indiscretion against an employer. But rather, it is a precautionary measure that is usually spelled out in the original employment contract. Hence when it is invoked, neither the employee or the employer is taken off guard.

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What about other benefits?

While an employer and employee may agree that the employee’s salary will continue during the period of gardening leave, there are other considerations that a gardening leave clause should also clarify with regard to;

  • Ongoing accrual of benefits such as vacations time, holiday pay and sick leave
  • Ongoing health care benefits
  • The loss of commissions from sales that might have accrued during the gardening leave period
  • Any restraint regarding future employment must comply with the restraint of trade laws and term in the employment contract
  • Whether the period of time spent on gardening leave will be deducted from any relevant restraint periods provided for in the employee’s contract of employment

The way for an employer to prevent any legal issues arising out of the gardening leave clause is to be sure the clause is properly written into the contract. In addition, it is wise to be sure to review the clause and secure the employee’s full understanding of its implications prior to the employee signing the employment contract. Ultimately, the best way to ensure that a gardening leave clause in an employment is legal and enforceable, is to seek the advice of counsel prior to including the clause in the contract.

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Pooja Kapur

Pooja Kapur

Pooja Kapur is a solicitor with Owen Hodge Lawyers. Currently, Pooja works in the Commercial Law department, primarily focusing on Employment law. After completing her Bachelor of Psychology and Bachelor of Law from the University of South Australia, Pooja completed her Graduate Diploma of Legal Practice from the Australian National University in 2018 and was admitted as a solicitor to the supreme Court of New South Wales in November 2018.

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