Garden Leaves
In these extraordinary economic times, many employers are learning to think outside of the box and explore employment arrangements that may be new to the United States. Many employers are familiar with restrictive covenants such as noncompetition agreements and non-solicitation agreements. However, if the employer's objective is to delay the employee's termination of employment for a short period of time, there is another option available that may assist the employer. The employer may consider using a "garden leave" provision.
There are two types of garden leave clauses: one in which an employee is paid to "sit in the garden" and not compete for a post-employment period (essentially a noncompete agreement with pay); and another that restricts when employees may resign their employment by requiring that the employees provide a minimal amount of notice before their resignation becomes effective. As to the latter, once employees provide notice of their resignation the employees may continue to work in order to transition job responsibilities to their replacements, or the employers may immediately relieve the employees of their responsibilities and continue to compensate the employees for their time.
Using this latter type of garden leave, the agreement may be structured such that, in that event the employer chooses to immediately relieve the employee, the employee will be provided with pay during the restricted period. In that case, the employee's employment terminates, but the company agrees to pay the employee during the restricted period. However, the employee's ability to continue to receive a paycheck may or may not be conditioned on proof of the employee's inability to find other work as a result of the noncompete provision.
The same benefit to the employer may be achieved through the type of garden leave provision that simply requires notice of resignation. The employees are still prevented from working for a competitor for a certain period of time after they give notice of their resignation. The garden leave provision also provides employers with sufficient notice that employees are leaving their employ so that the employers may take steps to ensure that the employees do not have access to trade secrets during their notice period. By the time the employees' employment is terminated, the employers' current pricing structures or marketing initiatives may have changed. Thus, the notice period should be long enough to allow the employers to insulate themselves from the negative effects the employees' terminations may cause the companies. The exact amount of time that the courts may agree to enforce is not clear at this time. Courts may fall back upon the same time periods enforceable under state laws for restrictive covenants. Thus, if employers are thinking about utilizing a garden leave provision, they should consider their local laws.
A garden leave provision that requires only notice does not replace the purposes of noncompetition and non-solicitation agreements. They do, however, provide employers short-term relief when valuable key employees decide to voluntarily terminate their employment. Especially in this economy, where competition may be more fierce than ever, employers may want to consider their various options to protect themselves from the loss of their most important assets - their employees.