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Disclaimer: Educational purposes only. Not legal advice. Consult a qualified NZ legal practitioner for your specific circumstances.

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employment

"Garden leave" explained

Key Takeaway

Garden leave is a period where an employee remains employed but does not attend work, usually during a notice period. It must be stipulated in an employment agreement. During garden leave, employees typically continue to receive wages and benefits, while remaining subject to contractual obligations like confidentiality.

Understanding Garden Leave in New Zealand Employment Law

Garden leave refers to a situation where an employee, having resigned or been given notice of termination, remains formally employed by their employer but is instructed not to attend work. Instead, they stay at home for all or part of their notice period. This arrangement is typically used to prevent the employee from accessing sensitive information, maintaining client relationships, or working for a competitor during their notice period.

Legal Basis for Garden Leave

In New Zealand, garden leave is not explicitly defined or mandated by specific legislation. Its legal basis primarily stems from the employment agreement—the contract between an employer and an employee [Source: Employment Relations Act 2000, s 65]. For garden leave to be lawfully implemented, it generally needs to be a term agreed upon in the individual employment agreement or otherwise mutually agreed upon by both parties.

The Employment Relations Act 2000 (ERA 2000) governs the overall employment relationship, and the principle of good faith applies to garden leave arrangements [Source: Employment Relations Act 2000, s 4]. Good faith requires employers and employees to deal with each other honestly and openly, and not to mislead or deceive each other.

Rights and Obligations During Garden Leave

While on garden leave, the employment relationship continues, meaning certain rights and obligations remain in effect for both parties:

  • Employee's Rights:

    • Continued Payment of Wages and Benefits: The employee is typically entitled to receive their full wages or salary, along with any contractual benefits (such as superannuation contributions and continued accrual of annual leave), for the duration of the garden leave period [Source: Employment Relations Act 2000, s 65].
    • Employment Agreement Terms: All other terms and conditions of the employment agreement, unless specifically altered or suspended by the garden leave clause, generally remain in force [Source: Employment Relations Act 2000, s 65].

  • Employee's Obligations:

    • Confidentiality: The employee remains bound by any confidentiality clauses—contractual terms preventing the disclosure of sensitive business information—in their employment agreement [Source: Employment Relations Act 2000, s 65].
    • Availability: Depending on the specific terms of the garden leave arrangement, the employee may be required to remain available for contact or to perform specific tasks if requested by the employer [Source: Employment Relations Act 2000, s 65].
    • Fidelity: The employee generally still owes a duty of fidelity to their employer, meaning they should not act against the employer's interests during this period.

  • Employer's Obligations:

    • Good Faith: The employer must act in good faith when implementing garden leave, ensuring the terms are applied fairly and reasonably [Source: Employment Relations Act 2000, s 4].
    • Clear Communication: The terms and expectations of garden leave should be clearly communicated to the employee [Source: Employment Relations Act 2000, s 65].

Enforceability of Garden Leave Clauses

For a garden leave clause to be effective, it should be a clear term within a valid employment agreement [Source: Employment Relations Act 2000, s 65]. While the ERA 2000 does not specifically dictate the parameters of garden leave, the courts may consider the reasonableness of such clauses, particularly if they significantly restrict an employee's ability to seek new employment immediately. The clause should protect a legitimate business interest of the employer.

Distinction from Suspension

Garden leave is distinct from suspension. Suspension is typically a disciplinary measure, often initiated when an employer is investigating alleged misconduct by an employee, and it must follow a fair process [Source: Employment Relations Act 2000, s 103A]. Garden leave, by contrast, is generally a contractual or mutually agreed arrangement, not a disciplinary action.

Personal Grievance Implications

An employee may raise a personal grievance—a complaint an employee can make about certain actions of their employer—if garden leave is imposed unfairly or in breach of their employment agreement. For example, if an employer imposes garden leave without a contractual basis, or if the terms are applied in a manner that constitutes an unjustified disadvantage or an unjustified dismissal (e.g., as a repudiation of contract), the employee may be able to pursue a claim [Source: Employment Relations Act 2000, s 103].

When to Seek Independent Legal Advice

When navigating specific situations involving garden leave, such as reviewing an employment agreement, disputing the terms of garden leave, or considering a personal grievance, it is advisable for individuals to seek independent legal advice. The Ministry of Business, Innovation & Employment (MBIE) and Community Law Centres (https://communitylaw.org.nz/) can offer further guidance and resources.

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