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Garden Leave and Restraint of Trade Agreements – Can garden leave be an effective substitute for a restraint undertakings or can it cause the restraint undertaking to be unenforceable?

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Labour, Employment & Human Rights Bulletin

Many senior executives have lengthy notice periods. In addition to that they are also often subject to restraint of trade undertakings. In the recent case of Vodacom v Motsa and MTN, the Labour Court was required to decide whether Vodacom could stop Mr Motsa from taking up employment with MTN for 12 months by requiring him to serve his six month notice period and adhere to his six month restraint of trade undertaking. The court found that it could and interdicted Mr Motsa from taking up employment for 12 months.

Mr Motsa was employed as a senior executive of Vodacom. In December 2015 he resigned from Vodacom’s employment to take up employment with MTN. Mr Motsa had a six month notice period and a six month restraint of trade undertaking.

Upon receiving his resignation, Vodacom issued a communication to all staff stating that, “Godfrey Motsa … will be leaving the company with immediate effect to pursue other opportunities.”

Mr Motsa understood this statement as releasing him from his obligation to work his notice period and that Vodacom would be paying him in lieu of notice. He therefore took up employment with MTN on 1 January 2016. Vodacom disputed that it had released him from serving his notice period and it sought to place him on garden leave. When Mr Motsa refused to be placed on garden leave, Vodacom brought an urgent application in the Labour Court for an order directing Mr Motsa to serve his notice period and interdicting him from taking up employment with MTN in breach of his restraint undertakings.

In dealing with this issue the court made some important statements regarding resignations, garden leave and restraint of trade undertakings. In respect of resignations, the court reminded us that –

“Resignation is a unilateral act. … When an employee gives the required notice, the contract terminates at the end of the period of notice. When an employee leaves his or her employment without giving the required period of notice, the employee breaches the contract. Ordinary contractual rules dictate that the employer may hold the employee to the contract and seek an order of specific performance requiring the employee to serve the notice period. Alternatively, the employer may elect to accept the employee’s repudiation, cancel the contract and claim damages.”

As to garden leave, the court reaffirmed the law in the following terms –

“… a garden leave clause is understood to typically provide that if an employee gives notice, the employer may require the employee to spend a whole or a part of the notice period at home, thus allowing confidential information to which the employee had access to become stale and keeping the employee out of the clutches of a competitor. The advantage for the employer, of course, is that the employee is rendered commercially inactive because he or she remains in employment, in circumstances where there is no risk to a reasonableness challenge that a restraint undertaking might otherwise attract. Of course, the disadvantage for the employer is that the employee remains entitled to remuneration for the notice period.”

In respect of restraint of trade undertakings, the court confirmed that a restraint agreement is enforceable unless it is unreasonable and that, in general terms, a restraint agreement will be unreasonable if it does not protect some proprietary interest of the party seeking to enforce the restraint. In other words, a restraint cannot operate only to eliminate competition.

When considering the facts of the case, the court found, on the facts, that Mr Motsa’s contention that the communication issued by Vodacom could be interpreted to mean that Vodacom had released him from working his notice period and that it would pay him in lieu of notice was wrong. Mr Motsa had not been released by Vodacom from the terms of his employment contract, he was required to serve his notice period, albeit on garden leave, and Vodacom was entitled to an order to this effect. Likewise, the court found the restraint to be reasonable and enforceable. On this basis, Vodacom was able to prevent Mr Motsa from taking up employment with MTN for 12 months.

While the judgment was in favour of Vodacom, the court sounded a warning that where an employee has a long notice period, for example, 12 months, and the employee has been on garden leave for that period, that period needs to be considered when seeking subsequently to enforce a restraint of trade agreement. So, if the period of garden leave and the period of the restraint, when taken together, result in the employee being kept on the sidelines for longer than is reasonably necessary to protect the employer’s proprietary interests, it may result in the period of the restraint being held to be unreasonable and so unenforceable.

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