You’ve just received notice from a key employee that they’re resigning - or you’re in the middle of a sensitive exit, redundancy, or dispute. Either way, you’re probably thinking the same thing: how do we protect the business while keeping everything fair and legally sound?
That’s where garden leave can be a useful tool. Used properly, it can protect confidential information, client relationships, and team stability while an employee works out (or is paid out) their notice period.
This guide is updated for current expectations and best practice in New Zealand, so you can feel confident you’re approaching garden leave the right way.
What Is Garden Leave (And When Would You Use It)?
Garden leave is when an employee is required to stay away from the workplace during their notice period, while remaining employed and continuing to receive their normal pay and benefits.
In plain terms, the employee is still employed (and still paid), but you’re directing them not to come to work - and typically not to contact clients, suppliers, or other staff, except where you authorise it.
Garden leave is most commonly used where:
- the employee is moving to a competitor (or starting a competing business);
- the employee had access to confidential information or commercially sensitive strategy;
- the employee has key client relationships you want to protect during the transition;
- there’s a risk of disruption to staff or customers if the employee stays in the workplace;
- you want a clean handover without giving the employee ongoing access to systems and information.
It’s different from termination (the employment relationship is ongoing) and different from redundancy (which is a specific process with consultation requirements). It’s also different from a restraint of trade - garden leave operates during the employment relationship, which changes what you can lawfully require.
Because of that, you’ll usually want your employment documents to support it from day one, including a well-drafted Employment Contract with a clear garden leave clause.
Is Garden Leave Legal In New Zealand?
Garden leave can be legal in New Zealand, but it isn’t something you can safely “improvise” after the fact.
In NZ, employment relationships are governed by the Employment Relations Act 2000, which is built around the duty of good faith. In practice, that means you need to treat garden leave as a reasonable direction within the employment relationship - and apply it in a way that is fair and proportionate to the situation.
Garden leave is generally easiest (and safest) when:
- there is a clear contractual right to place the employee on garden leave; and
- the decision is made for genuine business reasons (not punishment or retaliation); and
- the duration and restrictions are reasonable and tailored to the employee’s role.
If you try to place someone on garden leave without a contractual basis, you can run into issues such as:
- an employee arguing you’ve breached the employment agreement;
- a claim of unjustified disadvantage (for example, if you cut them off from work in a way that harms their role or reputation);
- arguments that you’ve acted unfairly or without proper process.
Garden leave isn’t “one size fits all”. A senior sales manager with deep client relationships and access to pricing strategy is very different to a junior role with no customer contact. The restrictions you impose should match the risk you’re trying to manage.
What Should A Garden Leave Clause Include?
The best time to set up garden leave properly is at the start of employment, not when you’re already in a difficult exit situation. A garden leave clause (and the surrounding notice and restraint clauses) should work together, not contradict each other.
While every business is different, a solid garden leave clause usually covers:
1) Your Right To Direct Garden Leave
The clause should clearly state that you can require the employee not to attend the workplace (or not to perform duties) during the notice period, while remaining employed.
Without this, you’re often relying on arguments about “reasonable instructions” - which can become messy fast if there’s any dispute.
2) Pay, Benefits, And What Continues During Garden Leave
If someone is on garden leave, they generally remain entitled to their usual pay and contractual benefits, because they are still employed. Your clause should be clear about what continues (for example, salary, car allowance, phone allowance, commission arrangements, and any other benefits).
Be particularly careful with commission-based roles. If their commission depends on active selling or attending appointments, you’ll want the contract to spell out how commission is handled during notice and garden leave, so there’s no confusion later.
Most garden leave arrangements include limits on the employee contacting:
- clients and customers;
- suppliers;
- staff members (especially to avoid poaching or disruption);
- anyone using company systems, databases, or social accounts.
These restrictions should be clearly defined. The goal is to reduce risk, not to isolate the employee unnecessarily.
4) Return Of Company Property
Garden leave is often paired with an immediate handover of property and access, including:
- laptops, mobiles, keys, ID cards;
- access cards and building passes;
- passwords and multi-factor authentication devices;
- company vehicles;
- client lists, documents, and files.
If you’re collecting devices or limiting access, remember you’ll still need to respect privacy obligations when handling employee information. If your business collects and stores staff personal data, having a clear Privacy Policy and internal processes helps you stay consistent and compliant.
5) Availability For Handover And Reasonable Requests
Even if the employee isn’t attending work, you may still need them to assist with handover, answer questions, or participate in transition planning.
A good clause can require the employee to remain reasonably available (during business hours) to support handover - while still making it clear you’re not expecting them to “work normally” day-to-day.
Garden Leave vs Payment In Lieu Of Notice (What’s The Difference?)
Garden leave and payment in lieu of notice can look similar from the outside (the employee isn’t working), but legally and practically they operate differently.
Garden Leave
- The employee remains employed during the notice period.
- You continue to pay them as normal.
- They remain bound by employment obligations (good faith, confidentiality, policies, etc.).
- You can direct them not to perform work and (if drafted properly) restrict contact.
Payment In Lieu Of Notice
- The employment ends earlier (or immediately), and you pay out some or all of the notice period instead of having them work it.
- This generally requires a contractual right to do so (or agreement at the time).
- Once employment ends, your ability to control the person’s conduct typically relies on post-employment obligations (like confidentiality and restraint clauses).
If you’re considering paying out notice, it’s worth understanding the detail of Payment In Lieu Of Notice, because the wording in your contract (and what you do in practice) can affect risk around termination disputes and enforceability.
As a general rule, garden leave can be a practical option where you want to keep the employee “within” the employment relationship (and its obligations) during the notice period, but limit their access and influence.
Common Risks And Mistakes Employers Make With Garden Leave
Garden leave can be very effective - but it can also backfire if you implement it in a way that’s heavy-handed, inconsistent, or not backed by your employment documents.
Here are some common pitfalls we see (and how to avoid them).
1) Trying To Use Garden Leave Without Contractual Support
If your employment agreement doesn’t include a garden leave clause, you may still be able to direct an employee not to attend work in some circumstances, but the risk of a dispute is higher.
If the employee challenges the direction, you’ll want to show it was reasonable and you acted in good faith - and that your approach wasn’t punitive.
If you regularly employ staff in roles with client relationships or sensitive information, it’s worth tightening this up at the template stage and ensuring your Employment Contract terms match your operational reality.
2) Overly Broad Restrictions That Don’t Match The Risk
Garden leave is not a “free pass” to impose extreme restrictions.
For example, directing a junior employee to stay at home for a lengthy notice period, banning all contact with anyone at work, and cutting off all support might be hard to justify unless there’s a real business need.
Keep the restrictions proportionate. Document your reasons internally so you can explain the decision later if needed.
3) Forgetting About Ongoing Duties (And Your Own Obligations)
When someone is on garden leave, they may still be:
- bound by confidentiality obligations;
- required to follow lawful and reasonable instructions;
- required to act in good faith (for example, not sabotaging handover or damaging your business).
But you’re also still the employer. That means you need to continue meeting your obligations too - including paying wages on time and maintaining fair treatment.
4) Poor Handling Of Company Devices, Systems, And Monitoring
A garden leave situation often involves cutting off access to email, CRMs, and messaging platforms. That’s normal - but be careful about how you do it.
If you’re looking through devices, monitoring communications, or relying on surveillance for any investigation, you should ensure your workplace practices are lawful and transparent. For example, if your workplace uses cameras, it’s important your policies and processes align with NZ expectations around privacy and fairness, including what’s covered in Are Cameras Legal In The Workplace.
5) Not Aligning Garden Leave With Restraint Of Trade Clauses
Garden leave is often used alongside post-employment restraints (like non-compete and non-solicitation clauses). The two need to work together.
For example, if you put someone on a long period of garden leave and then try to enforce an extended post-employment restraint, the overall impact may be seen as unreasonable depending on the circumstances.
This is one of those areas where tailored drafting matters, because what’s enforceable depends heavily on the role, the business, the market, and the duration.
How To Implement Garden Leave Fairly (A Practical Step-By-Step)
If you’re considering garden leave for a resigning employee, it helps to approach it as a process - not just a decision.
Here’s a practical step-by-step guide that generally aligns with best practice in NZ workplaces.
1) Check The Employment Agreement And Policies First
Before you say anything, review:
- the notice period terms;
- any express garden leave clause;
- confidentiality obligations;
- restraint of trade / non-solicitation clauses;
- commission/bonus provisions;
- any relevant workplace policies (IT use, conduct, handover expectations).
This is also a good time to sanity-check whether the contract language matches how your business actually operates day-to-day.
2) Identify The Business Risks You’re Actually Managing
Ask yourself (and document internally):
- What information does the employee have access to?
- What client relationships do they manage?
- What systems and databases can they access?
- Is there a genuine risk of client poaching or disruption?
This keeps you grounded in “reasonableness”, which is a key theme in NZ employment law.
3) Communicate Clearly And Keep It Professional
If you’re placing an employee on garden leave, communicate the arrangement in writing. Your letter or email should usually cover:
- the start date of garden leave and end date (notice expiry);
- confirmation they remain employed and will continue to be paid;
- instructions about attending the workplace (or not);
- instructions about client and staff contact (and any exceptions);
- what they must do about handover and availability;
- return of company property and removal of access.
Even when the situation is tense, keep the tone neutral. It’s not about “punishing” someone for resigning - it’s about protecting the business and ensuring a smooth transition.
4) Plan The Handover And Customer Coverage
Garden leave works best when it’s paired with a clear operational plan:
- Who takes over the employee’s accounts and projects?
- What do you tell customers and suppliers?
- What internal comms go to staff?
- What documents or knowledge needs to be transferred?
This is also where good contract hygiene helps - if you’ve already got the right agreements in place, you’re less exposed if a key person leaves suddenly (for example, for contractors, you may want a properly drafted Contractor Agreement rather than informal arrangements).
5) Keep Things Consistent With Your Wider Employment Processes
If the employee is leaving due to a dispute, performance process, or restructure, make sure your approach to garden leave doesn’t cut across other obligations you might have.
For example, if you’re simultaneously reducing roles or changing hours, you’ll want to ensure you’re following a fair process and documenting your decisions carefully - especially if there’s a risk the employee claims they were pushed out. (If your business is going through change, issues like Reducing Staff Hours can also overlap with notice and exit planning.)
Key Takeaways
- Garden leave is when an employee is required to stay away from work during their notice period while remaining employed and continuing to be paid.
- In New Zealand, garden leave is generally safest when your employment agreement clearly gives you the right to direct it, and when it’s used reasonably and in good faith.
- A strong garden leave clause should address pay and benefits, return of property, access to systems, restrictions on contact, and expectations around handover.
- Garden leave is different from payment in lieu of notice - with garden leave the employment relationship continues, which can help manage risk during the transition period.
- Common mistakes include relying on garden leave without a contractual basis, imposing overly broad restrictions, and mishandling privacy or device access issues.
- Implement garden leave with a clear written plan: check the contract, document the business reasons, communicate professionally, manage handover, and keep your approach consistent with your wider employment obligations.
If you’d like help putting the right garden leave clauses in place, reviewing an exit situation, or updating your employment documents so you’re protected from day one, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
