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How a company can protect itself from illegal actions of a former employee. What is a “garden leave”?

How a company can protect itself from illegal actions of a former employee. What is a “garden leave”?

PUBLICATIONS \ 06.05.2020

Often in foreign films, we see scenes where employees, who are being dismissed, are offered to sign a “non-compete agreement”, or they are put on a “garden leave”. At the same time, employees are not taken farewell for free: after dismissal, the entire period specified in the agreement is paid by the former employer. Tatyana Zvenigorodskaya, Acsour’s Senior Lawyer, found out whether these institutions are applicable in Russia.

What is the essence of the “non-compete agreement”?

In order to talk about the conclusion of a non-compete agreement in Russia, we will first refer to modern foreign practice. In the United States and many European countries (Germany, United Kingdom, France, etc.), it is actively practiced to conclude a non-compete agreement with an employee. This document protects the rights of the employer from the actions of the employee, and therefore is one of the most interesting institutions of labour law. The main purpose of the agreement is to preserve trade secrets, therefore under the terms of such a contract, a former employee is prohibited for a certain period after dismissal:

– conclude an employment agreement with a competitor company in relation to a former employer;

– to hold a similar post and have an analogous job description at the new place of work;

– create a company similar to the former employer;

– have business relationships with clients of the former employer.

There is no strictly defined list of conditions, therefore each of them is set by the employer individually. It is generally believed that during the period of validity of the agreement, the employer should “strengthen hand”: hire a new employee, transfer clients to him or her, and set up business processes in a new way.

What about the rights of the employee? Whether such an agreement is the discrimination against a former employee? Despite the fact that the main purpose of the non-compete agreement is to protect the interests of the former employer, the courts do not always support his or her side in the case of proceedings. The key point is the purpose of concluding a non-compete agreement. If the court finds out that the employer knowingly concludes such an agreement with the employee for the purpose of discrimination, the agreement may be declared invalid.

“Garden leave” as a method to ensure the integrity of trade secret

Another popular institution common in foreign countries is called “Garden leave”[1](sometimes referred to as “Business trip to the garden”) and is a specific practice common in the United Kingdom, Ireland, Australia, and New Zealand. “Garden leave” is provided for employees of foreign organizations mostly for two reasons:

1. In the public service — in the case of transfer of an employee to another state organization (or other position), but in the temporary absence of a free workplace (for example, when the previous employee has to work off for some time, and the new employee appointed to the position, should wait during this period);

2. When working in a commercial organization — if the former employer is afraid that his or her employee will disclose a trade secret to competitors and/or steal customers.

Why is a leave called “garden”? It is assumed that in the spare time, the employee can “do their garden”, waiting for a call to work or the end of the period of such leave.

As a rule, the “garden leave” clause is present in the employment agreement itself, therefore the employee initially agrees to such conditions and can not “replay” the terms of the agreement in case of dismissal. This clause may only be changed by a bilateral agreement with the employer, however, if the employer categorically refuses to cancel the “garden leave” or change its term, the law will be completely on the employer’s side.

The term of this “leave” may be different: from three months to three years. At the same time, the previous employer pays the employee a monthly salary in the same amount. It is attractive, isn’t it? However, practice shows that the “garden leave” clause is not included in the contract for all employees, but mostly for top managers of companies, as well as highly specialized employees.

As I have already mentioned, the main purpose of these institutions is to protect confidential information and trade secret of the former employer. But what does a trade secret constitute? It’s time to move a little away from foreign practice and refer to the legislation of the Russian Federation.

Protection of confidential information and trade secret

In Russia, trade secret is subject to special protection. This is confirmed by the provisions of the Federal law No. 98-FZ “On trade secret”. At the same time, in accordance with article 3 of this Federal law, each company independently determines information relating to trade secret. In addition, all over the world (including in Russia) it is common practice to conclude a non-disclosure agreement (NDA) not only with employees, but also with representatives of the company’s clients. In accordance with the provisions of the Federal law “On trade secret”, an employer may bring an employee to disciplinary, civil, administrative or even criminal liability for disclosing a trade secret.

However, neither the law “On trade secret” nor the non-disclosure agreement is a competent alternative to the non-compete agreement, since they have essentially different purposes, although they partially contain the same interests of the employer. For example, the purpose of the NDA is to protect information that is valuable to the employer both during employment period and after dismissal. The purpose of the “non-compete agreement ” is to protect the legal rights and interests of the employer by prohibiting the employee from subsequent employment. The difference is obvious, especially since in this case the subject of restriction is not only the use of information that is valuable for business, but the very identity of the employee by a competitor company. A legitimate question arises: is it possible to implement foreign practice of protecting trade secret in Russia?

After analyzing litigation practice, it may be concluded that the courts support employers’ decisions to impose disciplinary punishment in the form of dismissal for disclosing trade secret. However, the employer should prove that the trade secret mode has been violated. By the way, the Supreme Court gave explanations about this issue in 2004.

In accordance with clause 43 of the Resolution of Plenum of the Supreme Court of the Russian Federation No. 2 “On application by courts of the Russian Federation of Labour Code of the Russian Federation” dated 17/3/2004, the employer is obliged to submit evidence that the employee disclosed information relating to state, official, trade or other legally protected secret, or personal data of another employee, and the fact that this information became known to the employee owing to the performance of his or her employment duties and he or she undertook not to disclose such information. The phrase “undertook not to disclose such information” exactly implies the signing of a certain document, whether it is the employer’s NDA or internal regulatory documents.

As an example, I would like to cite the decision of the Golovinsky district court of Moscow with regard to case No. 2-5055/2013 dated 8/10/2013. Citizen X. was employed by Sotmarket LLC as a legal assistant. According to the concluded employment agreement, X. undertook not to disclose information included in the list of information constituting a trade secret of the employer with which X. was familiarized. X., following the order of his manager, scanned a number of financial documents for work-related purposes. These documents were sent by X. to third parties via Skype. This fact became known in the course of performance of an internal investigation, and the committee recorded this information. X. denied his guilt. As a result, he was dismissed on the basis of sub-clause “в” of clause 6, part 1 of article 81 of the Labour Code of the Russian Federation for disclosure of trade secret. Considering the fact that the spread of trade secret has not been proved, X. appealed to the court. The court declared the dismissal as lawful.

This case is not the only one where the court took the side with an employer whose trade secret was disclosed by committing illegal actions by an employee.

Conclusion of a non-compete agreement in Russia: a beautiful piece of paper or a basis for a court?

The legislation of the Russian Federation does not provide that an employment agreement or any other document may include a prohibition on actions of an employee after his or her dismissal that may lead to adverse consequences for the former employer[i] (for example, the conclusion of an employment agreement with a competitor).

Our legislators suppose that the institution of a “non-compete agreement” is discriminatory in nature against the employee. Freedom of labour is an integral element of individual liberty and is characteristic of the vast majority of modern constitutions and generally for a constitutional democracy[2]. Despite this, cases of conclusion of non-compete agreement have already begun to arise in Russia. Recently, there have even been new litigation cases on this issue. Thus, in case No. 33 – 52632/2018, the Moscow municipal court (appellate instance) overturned a judgement of the first instance and took the side of the employer. A former employee of CONSTRUCTOR RUS LLC tried to recover from the employer the remuneration due to him under the terms of the non-compete agreement if certain conditions were met. The court of the first instance meet the employee’s claims for recovery of remuneration, but in the court of appeal, the employer was able to prove that the employee violated the conditions, the fulfillment of which should have led to the payment of remuneration.

The described case is notable by the fact that the courts recognized the non-compete agreement as a legally binding document. This leads to the conclusion that Russia is beginning to adopt the foreign practice of using the form of non-compete agreement in labour relationships. However, without fixing this institution at the level of federal law, any conditions that restrict the employee’s right to free labour may still be considered null and void. At the moment, it is only possible to conclude a non-compete agreement by relying on the integrity of the employee.

So is this practice necessary in Russia? Of course, any question should be approached adequately. If Russian companies partially adopt foreign practices, this institution will not work, and in fact it will not be effective owing to its discriminatory nature. For example, if a company prohibits an employee from being employed by another company for a certain period of time without paying compensation. Such actions will be definitely regarded by the state and judicial authorities as discrimination against the employee.

At the same time, the Russian employer in the current situation can be very seriously affected by the actions of the employee. If a trade secret is protected by law, then actions to “poach” other employees and clients may be regarded by the court differently than the disclosure of trade secret to third parties. Signing a non-compete agreement with employees may serve as a certain protection even today (based on a new litigation practice), therefore each employer should provide this opportunity in their internal regulatory documents.


[1] The definition of the Cambridge dictionary: garden leave is a period of time after an employee leaves a job when they continue to be paid but are not allowed to go to work or to begin a new job.

[2] Urchukov R. M. Non-compete agreement as a restriction of freedom of labour of employees // Labour law in Russia and abroad. 2019. No. 3. P. 31 — 34.

Letter of the Ministry of Labour and Social Protection of the Russian Federation No. 14-2/V-942 On the additional non-compete agreement dated October 19, 2017

Tatiana Zvenigorodskaya

Senior lawyer