Garden leave: rules and rights

Garden leave (fritstilling) is one of the most misunderstood situations in Danish employment law. When an employee is placed on garden leave, they remain employed and continue to receive pay, but do not have to come to work. For employers and employees it raises many questions: what may the employee do? What happens to the non-compete clause? Can the employee start a new job?

This guide answers the key questions about garden leave and explains what a garden-leave agreement should contain.

What is garden leave?

Garden leave (fritstilling) is a situation where an employer releases an employee from the duty to come to work, while the employee is still employed and receives pay during the notice period.

Garden leave can occur in connection with:

• Notice given by the employer: the employer does not want the employee present during the notice period
• Notice given by the employee: the employee has resigned, but the employer does not want them present
• As an alternative to summary dismissal: for example in the case of cooperation problems, where the basis for a summary dismissal is too uncertain

Garden leave is not summary dismissal. Summary dismissal is an immediate termination of the employment because of the employee's gross breach. Garden leave, by contrast, means the employee does not have to come in but is still employed during the notice period.

When is an employee placed on garden leave?

Employers choose garden leave for several reasons:

1. Protecting trade secrets. Employees in sales, technology or management have access to sensitive information. Garden leave limits that access during the remaining employment period.

2. Preventing a negative effect on colleagues. A dismissed and dissatisfied employee can affect team morale. Garden leave minimises this effect.

3. Protecting customer relationships. A salesperson heading to a competitor may try to take customer contacts with them. Garden leave limits that opportunity.

4. Mutual agreement. In many cases the parties agree in a settlement agreement to place the employee on garden leave to make it easier to seek a new job.

The employee's rights during garden leave

The most basic rule of garden leave is: the employee keeps their rights as an employee during the notice period.

Pay and benefits

During garden leave the employee as a rule keeps:

• Pay, including basic salary, fixed supplements and pension contributions
• A company car, if the car is part of the terms of employment, unless otherwise agreed
• Staff benefits, for example health insurance

Work equipment such as a mobile, laptop and access card is the employer's property and is typically returned at the start of the garden leave. Garden leave does not stop pay automatically. The employee is entitled to pay until the end of the notice period, subject to the set-off rules below.

Holiday

Holiday can be taken during the garden-leave period, but only if it is given with correct notice under the Holiday Act, and if the garden-leave period is long enough for the holiday plus the notice to fit within it. If the holiday cannot be regarded as taken, the holiday pay must be paid out on leaving.

Practical tip: agree the taking of holiday expressly in the garden-leave agreement to avoid disputes about holiday pay.

Illness and parental leave

Illness during the garden-leave period does not interrupt the garden leave. The employee is entitled to pay or benefit during illness on normal terms. The same applies to parental leave.

May the employee on garden leave start a new job?

This is one of the most practically important questions, and the answer depends on whether the employee is a salaried employee (funktionær).

The starting point and the duty to mitigate

Garden leave removes the duty to attend but does not in itself bar the employee from taking a new job. There is no general statutory ban on taking a new job during the garden-leave period.

On the contrary, the employee on garden leave has a duty to mitigate loss: a duty to seek new, suitable work to limit the former employer's wage cost. The employer can require documentation that the employee is job-seeking.

Set-off of new pay, and the important 3-month rule for salaried employees

If the employee earns income from a new job during the garden-leave period, the former employer can as a rule set off that income against the garden-leave pay. But here there is a decisive difference:

• For salaried employees (funktionærer) a minimum compensation applies under section 3 of the Salaried Employees Act: the employer cannot set off new income in the first 3 months of the garden-leave period. The salaried employee is entitled to full pay for those three months, regardless of whether they get a new job, and can in that period effectively draw "double salary". The 3 months are counted from the start of the garden leave, not from the notice date. Only after the 3 months can set-off take place.
• For employees without salaried-employee status (for example certain employees covered only by a collective agreement) there is as a rule full set-off, with no minimum-compensation period.

For salaried employees the right of set-off follows from the law, not from a clause. An employer therefore cannot contract out of the 3-month protection to the employee's disadvantage. The important exception is that if the employee themselves asked to be placed on garden leave, it can validly be agreed that set-off applies from day one. It is therefore wise to document who requested the garden leave.

Non-compete and customer clauses

If the employee is subject to a valid non-compete clause or customer clause, it still applies during garden leave. A non-compete clause prohibits the employee from taking employment with a competitor or starting a competing business.

A non-compete clause under the Employment Clauses Act:

• Must be agreed in writing
• Can bind the employee for at most 12 months from leaving
• Triggers a right to compensation for the employee

The employee must therefore remain loyal and observe their clauses, even when on garden leave.

Worked example: garden leave for a salaried employee with a new job

Assume the following:

• A salaried employee with pay of DKK 60,000 a month
• A 6-month notice period, on garden leave from day one
• A new job at DKK 50,000 a month, starting early in the garden-leave period

Then:

• Months 1 to 3 (the minimum compensation): the employer pays full pay of DKK 60,000 a month and cannot set off the new income. In this period the employee keeps both their old and their new pay.
• Months 4 to 6: the employer can now set off the new income. If the new job pays DKK 50,000, the old employer must cover the difference up to the former pay, that is, about DKK 10,000 a month.

Note that after the minimum-compensation period it is the total loss over the whole garden-leave period that is decisive, and that bonus and supplements may be included in the calculation. So set out the set-off procedure clearly in the agreement.

What should the garden-leave agreement contain?

A written garden-leave agreement, typically part of the settlement agreement, should contain:

1. The start date of the garden leave: from when does the employee no longer have to attend?
2. The end date of the employment: the garden-leave period ends at the expiry of the notice period.
3. Pay and benefits in the period: specify pay, pension, company car, phone subscription and so on.
4. Return of work equipment: when and how are the mobile, laptop and access card returned?
5. Holiday: the holiday balance, whether holiday is taken in the period, and what is paid on ending.
6. Access to systems: when is access to email and internal systems removed?
7. Confidentiality: still applies during and after the garden-leave period.
8. Set-off of new pay: describe the procedure and what the employee must disclose. Remember the 3-month rule for salaried employees, and document if the garden leave is at the employee's request.
9. Clauses: confirm whether an existing non-compete or customer clause applies, is changed or is waived.
10. Reference: many agreements regulate what reference or recommendation the employer will give.

Limits on what the employer can require

Even during garden leave there are limits on what the employer can require:

• The employer cannot require the employee to perform work
• The employer cannot unilaterally reduce the agreed pay (beyond lawful set-off of new income)
• The employer cannot require the employee to stay available for "urgent tasks"

Garden leave is as a rule total: either the employee is on garden leave and therefore not working, or they are working. A partial garden leave that still obliges the employee should be worded very precisely to avoid doubt.

Garden leave and tax

Taxation of a company car during garden leave

If the employee keeps the company car during garden leave, the ongoing taxation of a free car continues, because the car is still made available. If the car is returned, the basis for taxation ceases from the time the availability ends. So agree clearly what happens to the car.

Garden leave in public-sector employment

Garden leave can occur in the public sector, but there are special features:

• Public employees may be covered by civil-servant or collective-agreement terms that deviate from private-sector employment law
• Administrative-law requirements apply to case handling and reasons

For public employees it is wise to involve the relevant trade union.

Bonus during the garden-leave period

A frequent point of dispute is whether the employee is entitled to a bonus that would have been earned during the garden-leave period.

The starting point: the employee is entitled to a bonus that has been earned but not yet paid on leaving. For a bonus that is earned on an ongoing basis, the outcome depends on the specific terms. A bonus that requires meeting certain targets that the employee cannot reach during garden leave will often lapse, while a bonus that is really a fixed share of annual income will often have to be included proportionally.

So set out a clear bonus provision in the garden-leave agreement.

Avoiding disputes: documentation

Garden-leave situations easily lead to disputes if the agreements are not clear and in writing. The most common mistakes are:

1. No written agreement: oral garden leave is hard to document
2. Unclear holiday terms: lead to claims for holiday pay on leaving
3. Company car not mentioned: disagreement about who keeps the car
4. A forgotten clause: the employee starts with a competitor in breach of a clause
5. No reference: the employee feels held back in the job search

A well-prepared garden-leave agreement, ideally as part of an overall settlement agreement, prevents disputes and ensures a tidy ending for both parties.