Garden Leave In New Zealand: Employer And Employee Rights

When a key employee resigns (or you need to end their employment), the notice period can feel like a “risk window”. They still have access to your clients, systems, pricing, and team - but their motivation to protect the business might have changed.

That’s where garden leave often comes up. Used properly, garden leave can be a practical way to protect your business while still treating the employee fairly. Used poorly, it can trigger disputes, reputational issues, or even legal claims.

In this guide, we’ll break down how garden leave works in New Zealand, when it’s appropriate, what to put in writing, and the common mistakes small businesses should avoid.

What Is Garden Leave (And When Do Small Businesses Use It)?

Garden leave is when an employee remains employed (and continues to be paid) during their notice period, but you direct them not to attend work and/or not to perform their usual duties.

It’s most commonly used when:

• An employee resigns and is heading to a competitor or starting their own competing business.
• You’re ending employment with notice (for example, after a proper performance management process) and want to reduce workplace risk during the notice period.
• There’s a restructure/redundancy proposal underway and you want to manage handover, client communications, or access to systems while you continue to follow a fair consultation process.
• The employee holds sensitive information (pricing, strategies, source lists, financial data, customer lists).
• The employee has client relationships and you want to manage continuity of service and protect goodwill.

Garden leave is different from:

• Suspension (often used during an investigation, and usually needs specific justification and process).
• Payment in lieu of notice (where employment ends sooner and you pay out the notice period instead of having them work it).
• Restraint of trade/non-compete obligations (which typically apply after the employment ends).

In other words: with garden leave, the employment relationship continues - which means most employee obligations still apply, and you still have employer obligations too.

Is Garden Leave Legal In New Zealand?

Garden leave can be lawful in New Zealand, but it isn’t something you can assume you’re entitled to do in every situation.

In practice, whether you can place someone on garden leave usually depends on:

• What the employment agreement says (ideally there’s a clear garden leave clause).
• Whether the direction is reasonable in the circumstances.
• Whether you follow a fair process (especially if the employee doesn’t agree).
• Whether you continue to meet pay and other entitlements during garden leave.

New Zealand employment law is heavily influenced by the duty of good faith under the Employment Relations Act 2000. Even if your contract has a garden leave clause, how you use it matters.

As a small business owner, a good practical test is:

• Is garden leave genuinely needed to protect the business (clients, confidential info, team stability)?
• Is it proportionate (duration and restrictions aren’t heavier than necessary)?
• Have you communicated clearly and acted fairly?

If you’re not sure whether your situation supports garden leave, it’s worth getting advice early - it’s much easier (and cheaper) to set it up correctly than to defend a personal grievance later.

What Should Your Employment Agreement Say About Garden Leave?

If you want the option to use garden leave, the best time to deal with it is before you need it - in your Employment Contract.

A well-drafted garden leave clause typically covers:

1) The Right To Place The Employee On Garden Leave

This is the core permission. It should make it clear that during all or part of the notice period you may:

• require the employee not to attend the workplace
• require the employee not to perform duties
• reassign duties (for example, handover/admin tasks only)

2) Pay, Benefits, And Entitlements Continue

Because the employee is still employed, you generally continue normal pay and benefits (unless the contract lawfully provides otherwise).

You’ll also want to consider how this interacts with:

• commission structures
• bonuses
• vehicle allowances
• tools of trade

These can be a flashpoint if they’re not addressed clearly upfront.

3) What The Employee Can And Can’t Do During Garden Leave

Garden leave often comes with directions like:

• not contacting certain clients/customers
• not accessing business systems
• not representing the business externally
• not attending meetings or sites

Be careful not to “overreach”. If restrictions look punitive rather than protective, you increase your risk of a dispute.

4) Confidentiality And Conflicts Still Apply

Employees on garden leave should still comply with confidentiality and loyalty obligations. This is also a good time to make sure you have a workable Conflict Of Interest Policy (especially if employees commonly have side gigs or family businesses).

5) Return Of Property And Access Management

If you’re placing someone on garden leave, you’ll usually also want to manage:

• return of laptops, keys, passes, uniforms
• removal of access to email, CRMs, shared drives, bank/payment systems
• password updates and two-factor authentication

Just make sure this is done calmly and consistently - not in a way that humiliates the employee or suggests misconduct unless you’re actually following a disciplinary process.

6) Interaction With Restraint Clauses (If You Use Them)

Garden leave is often used alongside post-employment restraints, but they aren’t the same thing. If you use restraint clauses, you’ll want them drafted carefully so they’re enforceable and appropriate for the role.

Depending on your industry, it may make sense to review your Non-Compete Agreement approach and get tailored Restraint Of Trade Advice so you’re not relying on “template wording” that won’t hold up when tested.

How To Implement Garden Leave Fairly (A Practical Checklist)

Even with a strong contract clause, garden leave should be handled in a way that’s fair, consistent, and commercially sensible.

Here’s a practical step-by-step approach many small businesses follow.

Step 1: Clarify Your Reason For Garden Leave

Write down (internally) why you’re doing it. Common reasons include:

• protecting confidential information
• protecting client relationships and goodwill
• reducing disruption to the team
• protecting health and safety or workplace culture during a tense exit

This helps keep your decision grounded and defensible if it’s ever questioned.

Step 2: Check The Contract (And Any Policies)

Before you say anything, check the employee’s signed agreement and relevant policies. If there’s no garden leave clause, you may still be able to reach an agreement - but you should be cautious about directing it unilaterally.

Step 3: Communicate Clearly And Professionally

Confirm in writing:

• the start and end date of garden leave (often tied to the notice period)
• pay and benefits arrangements
• whether they must remain available during business hours (for example, for handover questions)
• any limits on contact with clients or staff
• how company property will be returned

A calm, respectful email or letter goes a long way in preventing unnecessary escalation.

Step 4: Plan The Handover

Garden leave shouldn’t mean “no handover, good luck everyone”. A good process often includes:

• a short handover period before garden leave begins, or
• a structured handover document/checklist, or
• limited availability during garden leave for transition questions

For client-facing roles, decide who will communicate the change and what will be said (and keep it factual).

Step 5: Manage Access, Privacy, And Data Carefully

If you’re removing access to systems, do it with a plan. You may also be handling personal information during the offboarding process (for example, reviewing communications, device returns, or customer records).

This is where the Privacy Act 2020 matters - you should take reasonable steps to protect personal information and keep your actions proportionate to the risk. If you use monitoring tools, ensure your policies and processes support that (and that you’re not creating new privacy issues in the process).

Step 6: Consider Whether You Really Need Garden Leave (Or Another Option Fits Better)

Sometimes garden leave is the right move. Other times, it creates extra cost and admin without much benefit.

Depending on the situation, you might consider:

• shortening the notice period by agreement
• reassigning duties (removing client access but keeping useful internal work)
• payment in lieu of notice (ending employment earlier while paying out notice)
• a separation agreement with clear mutual obligations

When a relationship ends on sensitive terms, a Deed Of Settlement can be a practical way to document what both sides have agreed, and reduce the risk of future disputes.

Common Garden Leave Risks (And How To Avoid Them)

Garden leave can be extremely useful - but for small businesses, the issues tend to show up when it’s implemented quickly, informally, or inconsistently.

Here are some common risk areas to watch.

You Don’t Have A Contractual Right (And The Employee Pushes Back)

If the employment agreement doesn’t allow for garden leave, directing it without agreement can create legal risk. It may be argued you’ve acted unfairly or breached the agreement.

Fix: build the clause into your agreements going forward, and for the current situation consider negotiating a mutually acceptable arrangement (in writing).

You Stop Pay Or Benefits Incorrectly

Because garden leave is still employment, failing to pay correctly can create wage claims and escalate conflict.

Fix: confirm in writing exactly what will continue (salary/wages, allowances, benefits) and check any variable pay clauses carefully.

The Employee Starts Working Elsewhere During Garden Leave

If an employee is still employed by you, working for another business (especially a competitor) could breach their obligations - but you still need to handle it properly.

Fix: ensure your agreements and policies cover conflicts, secondary employment, confidentiality, and (where appropriate) restraint obligations. Then, if an issue arises, respond with a fair process rather than reacting emotionally.

It Becomes A “Punishment” Instead Of A Protective Measure

If garden leave looks like you’re sidelining the employee to embarrass them, you increase the chance of a personal grievance or reputational fallout.

Fix: keep your reasons business-focused, keep communications neutral, and avoid unnecessary restrictions.

You Mishandle The Termination Process

Garden leave often comes up around ending employment, but it doesn’t replace the need for a proper process (especially if you’re terminating rather than accepting a resignation). For example, if you’re dealing with serious misconduct, the right process may result in summary dismissal (meaning no notice period to “work out” on garden leave) - and you should get advice before taking steps that could prejudge the outcome.

If you’re planning to end employment, it’s worth getting advice early and ensuring your documents and steps are consistent with NZ expectations around fairness and good faith. In many cases, using an Employee Termination Documents Suite can help keep your process structured and consistent.

Garden Leave Vs Payment In Lieu Of Notice: Which Is Better?

This is one of the most common practical questions for small businesses: do you keep the employee employed (garden leave) or end things sooner (payment in lieu)?

There’s no one-size-fits-all answer, but here’s a simple comparison.

Garden Leave Might Be Better If:

• you want the employee to remain bound by employment obligations during the notice period
• you want a smoother client/team transition while keeping control of messaging
• you need them to be available for handover questions
• you want to reduce the risk of immediate competition (while still paying them)

Payment In Lieu Might Be Better If:

• you want a clean break quickly
• the employee’s presence (even remotely) is disruptive
• you don’t need a handover
• you want to reduce ongoing management time and minimise contact

Whichever route you choose, what matters most is that you:

• follow the employment agreement (or agree to a variation in writing)
• pay correctly
• act in good faith
• document your decision clearly

Key Takeaways

• Garden leave is when an employee remains employed and paid during their notice period, but you direct them not to attend work and/or not to perform their normal duties.
• Garden leave can be lawful in New Zealand, but it’s safest when your employment agreements clearly allow it and you use it reasonably and in good faith.
• A well-drafted employment agreement should deal with garden leave, pay/benefits during leave, confidentiality, return of property, and how access to systems and clients will be managed.
• Implement garden leave carefully: communicate in writing, plan a handover, manage access and privacy obligations, and avoid making it feel punitive.
• Garden leave is not a substitute for a fair termination process - if you’re ending employment, your process and documentation still need to be legally sound.
• If you’re relying on restraints (like non-competes), they need to be tailored and reasonable - overly broad clauses can be hard to enforce.

If you’d like help reviewing your employment agreements, adding a garden leave clause, or managing a resignation/termination process, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.