MANAGEMENT: Gardening Leave A Necessary Solution
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Getting rid of a director or senior executive is not practically the same as terminating the employment of more junior employees, for two reasons: money and power. Company boards should anticipate this when appointing an executive, and make sure the contract is clear on how to manage both of these tricky matters. But often sending them off on gardening leave is the best solution.
Deon Visagie, partner at Webber Wentzel’s Cape Town office says gardening leave is a term that is becoming more popular in South Africa these days, although it is more commonly used in other jurisdictions, mainly Europe.
“The term is used to refer to the situation where someone is paid for a period when they are not working, either after they have given in their notice of termination or when they are subject to an investigation by the company. From the number of reports of senior executives being sent on gardening leave in recent months, not only the term but the practice is becoming more popular in South Africa.”
Visagie says, “As a result of the sensitivities that often occur where one senior executive exits the business and another takes his or her place and particularly where the senior executive may not be leaving of his or her own accord, but because the board of the company has decided to move on, companies often ask the exiting executive to take gardening leave. It cuts the executives access to control, influence and access to sensitive information; effectively, his power within the organisation.”
A contract of employment normally requires a period of notice before termination. Where the contract is silent, then the statutory notice period is required before the contract of employment is terminated by either party. In executive employment contracts, notice periods of between 3 to 6 months are not uncommon.
Visagie advises that the notice provisions in executive employment contracts should provide that the employer may determine how the executive is to spend his time during the notice period, and companies generally rely on such provisions to effect the gardening leave.
The executive remains an employee of the company for the whole of the notice period, whether he is required to report for duty or not. Instead of saying that the executive was required by the board not to attend at the company during his three or more months of notice, which may be a negative for the executive from a reputational point of view, the parties normally agree to refer to that period as the executive being on gardening leave.
In reality, says Visagie, the executive is actually spending his notice period in accordance with the terms of his contract, which provides that the company can determine, subject to certain conditions that the executive not work during such notice.
“The basic premise upon which every contract of employment is founded is that the employee is obliged to make his services available and, whether the employer makes use of those services or not, the employer is still obliged to pay the employee for the time that the employee makes his services available to the employer. Accordingly, for any period of ‘gardening leave’ taken by the employee in the above scenario, the employer is obliged to pay the employee for that period.”
Gardening leave should not be confused with annual leave, which is a legislative right and is normally also governed by the contract of employment between the parties. An employee, including executive employees, has a contractual and statutory right to be paid out any outstanding annual leave upon the termination of employment. So, in most cases gardening leave does not coincide and is not the same as taking annual leave, unless agreed to between the parties.
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