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HR Update: Garden Leave and Payment in Lieu of Notice Clauses

Once the decision is made for an employee to leave your business, you may have the option to put them on Garden Leave or pay off their remaining wages and have them leave the business with immediate effect. Phoebe Davies from Bhayani Law, the BII’s free helpline provider, looks at the benefits for employers…


HR Update: Garden Leave and Payment in Lieu of Notice Clauses

What is Garden Leave?

Garden Leave is when an employee is required to spend some or all of their notice period away from their place of work and the employee will often be restricted from performing some or all of their duties.

The employee will generally be prevented from contacting clients, suppliers or customers but will continue to receive their full salary and all other contractual benefits and payments until the end of their notice period.

What are the benefits of putting an employee on Garden Leave?

  • An employer may require an employee to go on Garden Leave to protect themselves against competition, poaching clients, customers and staff and generally out of trouble. A period of Garden Leave can assist in the enforcement of restrictive covenants, confidentiality and intellectual property clauses too.
  • The idea behind keeping an employee away from their place of work is to make sure that they cannot harm the business in anyway when they hand in their notice or you serve notice, but they will be prevented from working for another business or setting up their own business during this time.
  • If the employee is away from the business, has limited or no access to company information and is effectively out of the industry for any period of time, this will limit the damage they can do to a business when they do eventually move on after their period of notice has expired.
  •  It may also be beneficial to have an employee away from the business if the dismissal is acrimonious or the employee is likely to disrupt other employees or will not be productive during their notice period.
  • You can still require an employee to return to work or resume some or all of their duties at any point during the Garden Leave period.

What is a Payment in Lieu of Notice?

A Payment in Lieu of Notice, sometimes referred to as PILON, is when the employment contract terminates and you make a payment for any outstanding notice not worked and you do not require the employee to work all or the remainder of their notice period. A Payment in Lieu of Notice may be made when the employer would rather the employee leave with immediate effect and a period away from the business on Garden Leave is unlikely to offer the Company any enhanced protection from any breaches of contract.

It is possible to PILON employees without a clause in the contract however do seek advice from us on the BII line if you’re thinking of doing this.

What are the benefits of making a Payment in Lieu of Notice?

  • The employment will terminate at the point they are notified that a Payment in Lieu of Notice will be made and it is a way to remove them from the business where no ‘gross misconduct’ has occurred.
  • The benefits of the employee no longer attending work are the same as when they are on Garden Leave, as discussed above.
  • Contractual benefits will cease with immediate effect and no further holiday pay or other contractual payments will need to be made beyond the termination date.

Garden Leave vs Payment in Lieu of Notice

You must first check the contract of employment to ensure that the contract contains the appropriate clauses. If the contract does not contain these clauses, you may only be able to exercise these options with the employee’s consent. You have no automatic right to serve notice and require the employee to go on Garden Leave or dismiss an employee and make a payment in lieu. This could be considered a breach of contract if the employee does not consent.

In both cases, the employee will not work some or all of their notice but will still receive pay. Neither option removes or reduces the employer’s duty to make the correct statutory or contractual notice payment.

Other considerations could be:

  • the payment of further holidays and contractual benefits. An employee on Garden Leave will continue to accrue holiday until their termination date and will be entitled to other contractual payments during this time whereas a termination with a payment in lieu would end these benefits with immediate effect.
  • With appropriately drafted clauses, you may require an employee to use their holidays during a period of Garden Leave which could serve to limit the additional payments that you would have to make, however you wouldn’t be able to do this with PILON.
  • If there is a chance that you will require the employee to return to work or provide additional information such as training or assist in a handover, then Garden Leave would be preferable as you cannot compel an employee to co-operate and assist the business once their employment has terminated.

There are pros and cons to both of these options but, should an employee resign or you decide to dismiss an employee and believe that they may pose a risk to the business, then you should seek legal advice on whether Garden Leave or a payment in lieu would be the best option for your business.

Check and update your Contracts of Employment

If your contract does not contain a Payment in Lieu of Notice clause and/or Garden Leave clause then we would strongly recommend that your contracts are amended to insert such clauses.

Our employment law team at Bhayani HR & Employment Law are experts in drafting robust, easy to understand and detailed contracts of employment which will protect your business and reassure employees that they will be treated fairly.

For general guidance, you can ring on the BII helpline and speak to one of our advisors.

For drafting services, we would be happy to speak to you about a review of your current contracts of employment. We can assist with the redraft of your contracts of employment at a competitive fixed fee cost.

You can call the free BII Legal & HR Helpline any time about this or any other issue on: 0330 058 3878.