Legal

Can an employee use TUPE to escape garden leave?

19 Sep 2017 By Victoria Albon

Legal expert Victoria Albon reports on a recent High Court ruling involving an employee who claimed his garden leave period had been ended by TUPE

When a valuable employee gives notice to terminate their employment, garden leave is a useful tool for employers in protecting their confidential information, client contacts, workforce and, ultimately, their business. While garden leave is the dream for some, for other employees it can be an unattractive prospect – particularly if they work in a fast-paced industry or profession in which maintenance and development of knowledge is key (or if they're simply keen to start a new job).

It is relatively common for employees with long notice periods (whether or not they are on garden leave) to allege that the employer has breached their contract, and so treat themselves as released from their notice period, from garden leave and from any post-termination restrictive covenants so they can begin new employment. In practice, this is unlikely to occur once garden leave has started, if the employer has limited contact with the employee.

In ICAP Management Services Ltd v Berry & Another, Mr Berry, CEO of ICAP (a company providing brokerage services), sought to take advantage of an alleged transfer of his employment under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) to release himself from the remainder of a 12-month period of garden leave.

Berry resigned from ICAP to take up a position at BGC Services. ICAP placed Berry on garden leave for his 12-month notice period. Several months later, the entire issued share capital of ICAP's parent company was acquired by Tullett Prebon, another brokerage firm. Berry tried to use this to his advantage, and argued that the acquisition would give rise to a TUPE transfer. He then exercised his right to object to the transfer under TUPE, treating the transfer as terminating his employment and his garden leave so he could begin his new employment.

ICAP contested that there had been a TUPE transfer, and sought and obtained an injunction enforcing the remainder of the garden leave period. BGC and Berry contested the injunction. Their primary argument was that there had been a TUPE transfer.

The High Court judge agreed that, while there were limited cases where a share sale may give rise to a TUPE transfer, this was not one of them. The court held that, for TUPE to apply, there needed to be (among other things) a change of employer. Although there had been some changes to ICAP's corporate structure as a result of the share sale, ultimately no new owner had ‘stepped into the employer's shoes’. TUPE could not, therefore, apply.

Had the decision gone the other way, this would have fundamentally altered the current legal position in respect of the application of TUPE to share sales. The decision is therefore unsurprising. However, the decision highlights another potential strategy employers should be aware of that employees may use in seeking to release themselves from garden leave.

Practical considerations

  • Consider whether TUPE might take effect as the result of an intra-group reorganisation. Where an important employee is on garden leave, consider whether it might be practical to delay the reorganisation to avoid the risk they may object to the transfer.
  • Where considering an asset sale, potential sellers should consider the extent to which the risk of objection by an important employee on garden leave may make the business unattractive to potential buyers. As part of their due diligence, buyers should consider the impact of any objection on the target company. Where the risk is significant, the parties may consider restructuring the transaction.
  • An employee who objects to a TUPE transfer to avoid an extended garden leave period will remain bound by the restrictive covenants in their contract (so long as these are enforceable). Restrictive covenants should be carefully drafted and go no further than is necessary to protect the employer's legitimate business interest. Even if garden leave legitimately ends early, an employer will retain the option of enforcing covenants to protect their business.

Victoria Albon is an associate in the employment team at Dentons

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