Legitimate business reasons for garden leave

Posted: 13th December 2017

TradingIn an important decision that strengthens the hand of employers facing hard times, the High Court has ruled that a financial services company had legitimate business reasons for placing a highly-paid bond trader on garden leave.

The trader was on a minimum five-year contract and, on top of his basic salary, was entitled to a minimum bonus of £200,000 a year.

The desk on which he worked had, however, experienced a dramatic downturn in revenues and he was placed on garden leave after a view was taken that it was too expensive to keep him on. He remained on garden leave for over a year prior to his dismissal.

The company accepted that he had been wrongfully dismissed and that he was entitled to be paid his salary, pension contributions and guaranteed minimum bonus from the date of his dismissal to the expiry of his contract. Issues remained, however, as to his entitlements during the garden leave period.

The Court found that, on a true reading of the contract, there was no express duty to pay him a bonus while he was on garden leave. There was, however, an implied term that such bonus payments would only be refused on rational grounds.

In finding that such grounds existed, the Court noted that the company’s motive for placing him on garden leave was its view that continuing to pay him a guaranteed bonus was unsustainable against the background of declining revenues. He had been unwilling to accept a change in his contract terms and the company had business reasons for its decision that were not arbitrary.

The company acted with reasonable and proper cause and its intention had been to negotiate a settlement while he was on garden leave. The amount of the man’s compensation in respect of his admitted wrongful dismissal remains to be finally calculated. His claim was otherwise dismissed.