Removal of Car and iPhone During Gardening Leave Breached Employment Contract

19 February 2016

The Victorian Supreme Court recently found that an employer who took away its National Sales Manager’s car, iPhone and iPad during “gardening leave” breached his employment contract.  As a result, the employer could not stop the employee from commencing work with a competitor, even though his notice period had not ended.

The employee accepted a job with a competitor in August 2014 and gave notice of resignation on 13 August 2014.  The employer directed him to take leave with pay (i.e. “gardening leave”) during the four week notice period, and required the return of his work car, iPhone and iPad, even though the car and phone formed part of his salary package.  When the employee commenced with the competitor on 1 September 2014, the employer brought proceedings in the Supreme Court alleging breach of contract.

Although the contract did not expressly allow for gardening leave, Justice Bell found it was fair to imply the term because there of the risk that the employee would commence with a competitor.  However, by removing the entitlements during gardening leave, the employer effectively reduced the employee’s salary, which amounted to a repudiation of his employment contract.

Justice Bell found that the employee had accepted the repudiation of the contract when he commenced with the competitor.  He had indirectly communicated this to the employer when the employer called the employee and heard his voicemail message advising that he was now working for the competitor.  Once the employee’s acceptance of the repudiation had been communicated, the employment contract came to an end, so the employee was no longer bound by the obligations of loyalty and fidelity to his previous employer.

In this case, the contract did not contain any post-employment restraints, such as clauses to prohibit the employee from working for a competitor or soliciting clients and other employees for a period of time.  Even if it had, the employer may not have been able to rely on them because of its repudiation of the contract.

Lessons for employers

This case serves as a reminder to employers to ensure that you have taken all possible steps to protect your clients, confidential information and other employees when senior employees leave.  Consider whether your employment contracts with key staff should expressly allow for gardening leave and post-employment restraints.  Be careful not to place your business at increased risk by inadvertent repudiation of the contract and review your IT and confidentiality policies to make sure your confidential information does not stray outside your business.

Actrol Parts Pty Ltd v Coppi (No 2)

[with hyperlink to http://www.austlii.edu.au/au/cases/vic/VSC/2015/694.html]