Tim Marshall a Partner in our London office, comments: The Court of Appeal has today handed down judgment in an important case on garden leave. The decision in Sunrise Brokers LLp v Rodgers extends the impact of the decision of the Supreme Court in Société Generale v Geys and could have implications for how employers deal with the resignation of a key employee to join a competitor.
Sunrise Brokers LLP (Sunrise) is an inter-dealer brokers. Mr Rodgers worked as a derivatives broker under a contract signed in September 2011 for a three year fixed term, terminable by him by twelve months’ written notice given on or after the expiry of the fixed term. The contract contained a garden leave provision enabling Sunrise to place him on garden leave during any period of notice, and six month post-termination restraints. There was provision for any period of garden leave to be ‘set-off’ against the post-termination restraints. In March 2014, he signed an agreement with one of Sunrise’s principal competitors, EOX Holdings Ltd (EOX) to commence working for them in New York in January 2015. On 27 March he informed a director of Sunrise that he was leaving and wanted to leave immediately. He was asked to return to work but refused, left the office and did not return. On 9 April Sunrise’s general counsel told him he should come back to work with a view to agreeing a sensible termination plan, which he again refused. He emailed the company saying that he was relocating to New York and would not start work elsewhere until September 2014, and would agree to remain on garden leave. In light of his continuing absence from work, Sunrise did not pay him in May. Sunrise’s lawyers wrote to Mr Rodgers saying that as he had not given notice in accordance with his contract he remained employed, not in a period of notice and fully bound by his employment contract. Mr Rodgers’ solicitors contended that he had resigned with immediate effect on 27 March. Sunrise indicated that they would be prepared to agree a reduced period of notice terminating on 16 October 2014.
In May 2014 Sunrise commenced High Court proceedings for a declaration that Mr Rodgers remained their employee until 16 October 2014, together with injunctions enforcing his obligations regarding working for a competitor until that date and then until 16 April 2015. The judge allowed the claim, although he declined to enforce the post-termination restrictions beyond 27 January 2015. Mr Rodgers appealed to the Court of Appeal.
The Court of Appeal upheld the High Court decision. As confirmed by the decision in Société Generale v Geys, Sunrise were entitled to choose whether to accept Mr Rodgers’ repudiation of the contract in purportedly resigning, or to affirm it and keep it alive. They had chosen to affirm. Mr Rodgers did not become entitled to terminate the contract due to the non-payment of salary in May as his entitlement to be paid depended on being ready and willing to work, which he was not. Sunrise was not obliged to pay Mr Rodgers up to the termination of his employment on 16 October 2014 as he had not been placed on garden leave, he had simply absented himself from work. Although an injunction should not be granted where the effect would be to compel the employee to continue to work for the employer, there was no rule requiring employers to give an undertaking as to pay which goes beyond their contractual obligation in order to obtain an injunction. The Court relied on a number of factors in upholding the injunction; the fact that Mr Rodgers was only not being paid because he was unwilling to attend work, the fact that it was clearly contemplated when he entered into the agreement with EOX that he might not be able to start until January, and his offer not to work until September. The Court concluded that this was not a case in which the granting of the injunction without the employer paying remuneration would mean that the employee was compelled to work for the employer.
The Court declined to offset the period during which Mr Rodgers remained employed against the period of post-termination restriction. It was common ground that Mr Rodgers could not have objected to a six-month post-termination restriction during which he would not have been paid. The fact that he was subjected to an additional four months unpaid was a consequence of his refusal to return to work; if he had done so, Sunrise would almost certainly have placed him on garden leave, and he would have been entitled to remuneration in addition to set-off of the garden leave against the restraint.
The facts of this case were fairly unusual; as the Court noted, the issue of payment only arose because Sunrise had not invoked the garden leave clause, which will not often be a safe course of action for the employer to take. However, the case does illustrate that when a key employee resigns without giving the appropriate notice, employers should not necessarily rush to invoke the garden leave provision without first considering whether there are alternative options.
The Court noted the unanswered questions which remain following the decision in Geys; whether, in a situation where it is the employee rather than the employer who has affirmed the contract rather than accept a repudiatory breach, the employee can sue for his salary. The decision in this case would seem to suggest that he can, but crucially only where he remains ready and willing to work.