Fund Manager Held to ‘Garden Leave’ Covenant

A veteran fund manager who brought down the wrath of his former employer when he resigned and moved to a competitor has been issued with an injunction holding him to a ‘garden leave’ covenant in his contract. The High Court found that the term was reasonable and gave his ex-employer a fair opportunity to retain its clients.

The manager had worked for many years for a nationwide wealth management firm with 300 staff and £6.5 billion of funds under management. He had a substantial number of important clients but fell out with his employer over the introduction of new technology which he felt had rendered him ‘outdated’.

He resigned in writing with a view to joining a direct competitor as soon as possible; however, the firm responded by exercising an express term in his contract by placing him on garden leave and holding him to his contractual 12-month notice period. Within a month, however, the manager resigned summarily on the basis that the firm had committed a repudiatory breach of his contract. He said that he regarded himself as free to commence employment with the competitor immediately.

The firm launched proceedings and obtained a temporary injunction restraining the manager from taking up his new position and forbidding any action on his part that might lure away its clients. Despite that order, he had subsequently attempted to divert a valuable business opportunity away from the firm to his new employer and had sought to undermine the firm’s attempts to maintain its client base.

In extending the injunction for the whole 12-month period of the manager’s notice period, the Court rejected his plea that there had been a repudiatory breach of his contract. Garden leave covenants are commonplace in the financial world and, if he were permitted to take up his new post straight away, there was a real prospect that the firm would suffer an unquantifiable loss.

Describing the manager as an ‘over-defensive’ and ‘unreliable’ witness, the Court found that he had continued to ‘sing the praises’ of his new employer to his clients and that his denials that he had done anything to undermine the firm’s interests were ‘persistent, opportunistic and implausible’.