GARDEN LEAVE CLAUSE
As an alternative to traditional non-compete clauses, an employer hiring any senior executives or employees who will have access to trade secrets and highly sensitive or confidential information should consider offering a “garden leave” clause in their employment contracts. The concept of gardening leave originated in the United Kingdom and has gained popularity in the United States since 2018 when Massachusetts decided to officially turn this into law.
What is a Garden Leave Clause?
Garden leave is a notice requirement in its true sense. When an employee is bound by such a clause the employee is required to provide the employer with a certain amount of notice prior to their resignation. While the exact nature of how the gardening leave will work depends upon how the clause is drafted, a gardening leave clause will generally allow for the employer to put the employee on paid leave during the such notice period. While the employee is released of his duties and obligations during this notice period, the employee remains “an employee” with a duty of loyalty towards the Employer and further prohibits the employee from engaging in any work or commercial activity with any competitor of the employer.
Garden leave provisions may be included in various agreements between employers and employees, such as:
- Offer letters.
- Employment agreements.
- Bonus plans or agreements.
- Equity award agreements.
- Long–term incentive plan (LTIP) agreements
- Supplemental Executive Retirement Plan (SERP) agreements.
- Stand–alone non–compete, non–solicit, or confidentiality agreements.
- Severance agreements.
Enforceability of Garden Leave Clauses
Like restrictive covenants in general, the enforceability of the garden clause may be dependent upon the amount of notice required and other restrictions set forth in the agreement. Indeed, a reviewing Court will look to both the time in the notice period and whether any other restrictions set forth therein are supported by legitimate and justified business interests, such as protecting confidential information or the safeguarding of customer relationships. The willingness of the employer to pay an employee during the garden leave will help to support the reasonableness and enforcement of the garden leave.
Advantages of Garden Leave
- The employee’s duty of loyalty to the employer continues during the garden leave, giving the employer added protection.
- Allows for a well-arranged and planned transition in the employee’s relationships and responsibilities.
- This provision can be drafted to give the employer flexibility to release the employee from the garden leave provided their release causes no threat to their business.
Disadvantages of Garden Leave
- Financial impact – The employee must be paid even when he/she does not perform work for the employer during the garden leave period.
- Garden leave clauses provide shorter-term protection compared to that a traditional non-compete clause.
Notwithstanding the disadvantages, employers should strongly consider garden leave clauses as they provide greater protection for the business of the employer and could reduce legal costs in the future.
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