Garden leave is a legal concept often used by employers when an employee is terminated or when they tender their resignation. It is a transition period for employees who give or are given notice of termination, keeping them on the payroll but away from the workplace. It prevents the employee from working for a competitor or poaching clients, customers, or colleagues during the notice period. During this period, an employee is often cut-off from physically entering corporate offices, having access to confidential documents, or communicating with certain coworkers. This is intended to prevent the employee from sabotaging the work environment and from taking proprietary information to a competitor. Salaries and benefits continue until the end of the leave period. The term "garden" is commonly used in the UK, Australia, and New Zealand financial industries. In 2018, Massachusetts became the first state in the US to pass a garden leave clause into law. Garden leave is a mutually agreed-upon contractual obligation between a company and an employee. It is typically included in employment contracts for senior management and other executives but can be used for any employee. When an employer places an employee on garden leave, the terms and conditions of the leave are specified in the employment contract. During this period, the employee is required to stay away from the workplace or work remotely from home. They remain on the payroll and continue to receive their salaries and benefits until the end of the leave period. While on garden leave, the employee is typically prohibited from accessing the employer's data and computer system and is also prohibited from contacting clients, suppliers, or fellow employees. The employee is usually required to return company property such as laptops, smartphones, or vehicles during this period. An employee is required to be available if the employer requires information, support, or even to resume working. For this reason, an employee should not plan to travel during garden leave unless approved by the current employer. An employer may also compel the employee to take any accrued holiday time during the period of garden leave. Gardening leave can have both benefits and drawbacks for employers. By keeping the employee away from the workplace, garden leave enables the company to safeguard their business interests, avoid litigation and manage employee transition. By keeping an employee out of the office and away from clients, customers, and colleagues during their notice period, the employer can prevent the employee from sharing confidential information, poaching clients, or damaging the company's reputation. Employers can use garden leave to avoid litigation that could arise if an employee were to work for a competitor or start their own business. It helps minimize the risk of a breach of contract or violation of non-compete agreements that could result in costly lawsuits. Employers can use garden leave to manage the transition of an employee leaving the company. The employee can use the time to prepare for their new job or to search for new employment opportunities, while the employer has time to adjust and prepare for their departure. One of the biggest drawbacks of garden leave for employers is the cost. Employers must continue paying the employee during the garden leave period, which can be expensive, especially if the employee is a high-level executive. Garden leave can negatively impact the morale of other employees, who may view it as a punitive measure against their departing colleague. This can lead to resentment and decreased productivity, which can harm the overall work environment. Employers who use garden leave may be perceived negatively by clients, customers, and potential employees, who may view it as an unfair or controlling tactic. This can damage the employer's reputation and make it harder to attract and retain top talent in the future. Employers need to ensure that garden leave is implemented in a legally compliant manner to avoid any potential legal issues or lawsuits. This includes ensuring that the terms of the garden leave are clearly outlined in the employee's contract and that the employee's rights are not being violated. Gardening leave can also have both advantages and disadvantages for employees. Garden leave may also provide some benefits for employees depending on how they choose to spend their time. Employees who have resigned or been dismissed may feel stress and uncertainty during their notice period. Gardening leave can provide a much-needed break from work and allow the employee to take time to relax and decompress. The time away from work during gardening leave can provide an opportunity for employees to pursue personal development. This could involve taking classes, attending workshops, or pursuing other interests that can benefit their career in the long run. Gardening leave provides an opportunity for employees to improve their work-life balance, which can be difficult to achieve in a demanding work environment. The time away from work can allow for more time with family and friends, hobbies, and other personal interests. During gardening leave, an employee may not receive bonuses, commissions, or other forms of compensation that are tied to work performance. This can lead to financial strain, especially if the employee has not saved enough money to cover their expenses during the leave. During gardening leave, employees may be restricted from working for a competitor or starting their own business. This can limit job opportunities, which can be especially problematic if the employee has already resigned from their previous job. Gardening leave may result in social isolation for employees, as they may be cut off from their usual social network at work. This could be especially problematic if the employee had close relationships with colleagues at their previous job. Garden leave clauses are not a mandatory inclusion in employment contracts, especially during the hiring process. However, they are recommended for positions like senior management and executives and can help protect the company's interests. If a company chooses to implement gardening leave without a specific clause in the employment contract, it risks facing a breach of a contract dispute. However, there may be some challenges in implementing garden leave clauses, especially for employees who receive a commission or bonus based on their work activities. In such cases, employees may dispute the clause, resulting in disputes or even lawsuits between the parties involved. Employers should be mindful of these factors and consult with legal professionals when drafting and implementing garden leave clauses. ABC Company is a global financial services firm with over 1,000 employees worldwide. John, a senior investment banker with 10 years of experience, has worked at ABC Company for the past 5 years. John recently accepted a job offer from XYZ Company, a rival firm in the same industry, and is set to start working there in two weeks. ABC Company is concerned that John may take confidential information and clients with him to XYZ Company, which could harm ABC Company's business interests. To prevent this, ABC Company decides to put John on garden leave for the two-week period between his resignation and his start date at XYZ Company. During this period, John will be paid his regular salary, but he will not be allowed to work or contact clients, employees, or anyone else in the industry. Employment law varies from country to country and can sometimes differ significantly. As such, it is important to understand the legal requirements and considerations of gardening leave in the relevant jurisdiction. In the United Kingdom, for example, gardening leave is a common practice in employment contracts, and employers have the right to place employees on gardening leave as long as the terms are included in the employment contract. In Australia and New Zealand, gardening leave is also common, and employers can place employees on gardening leave as long as it is reasonable and necessary to protect their legitimate interests. In the United States, gardening leave is less common, but some states have enacted laws related to garden leave. For example, in Massachusetts, a garden leave provision was introduced in 2018, which requires employers to pay employees at least 50% of their base salary during the garden leave period. In Illinois, the Illinois Freedom to Work Act was passed in 2021, which restricts employers from imposing non-compete and non-solicitation agreements on low-wage workers. Enforcement and consequences of gardening leave breach will vary depending on the jurisdiction and employment contract terms. In the United Kingdom, if an employee quits a job without prior notice, it breaches the employment contract. If an employer wants to implement garden leave, they can reject the termination of the contract and place the employee on suspension during the notice period. This applies even if an employee resigns immediately due to constructive dismissal. In the United States, the consequences of gardening leave breach will depend on the state in question and the employment contract terms. Employers may seek damages or other remedies for breach of contract, but it is important to ensure that the gardening leave provision is reasonable and necessary to protect the employer's legitimate interests. Garden leave is useful for employers to protect their business interests when an employee resigns or is terminated. However, it is not always the best option, and employers must carefully evaluate whether it is appropriate in a given situation. Garden leave is appropriate when the employee has access to sensitive or confidential information, such as trade secrets or client lists, that could be used to harm the company if the employee were to work for a competitor. It is also appropriate when the employer wants to prevent the employee from poaching clients, customers, or colleagues during the notice period. However, garden leave may not be appropriate in all situations. For example, if the employee does not have access to sensitive information and is not in a position to cause harm to the company, garden leave may not be necessary. Additionally, garden leave may be unnecessary if the employee is not likely to work for a competitor or poach clients, customers, or colleagues. Employers should carefully evaluate the risks and benefits of garden leave in each situation and consult with legal counsel before implementing it. Garden leave is a legal concept that allows employers to keep an employee on the payroll but away from the workplace during a transition period, typically when an employee resigns or is terminated. While garden leave can have benefits and drawbacks for employers, it is useful for protecting their business interests, avoiding litigation, and managing the employee's transition. At the same time, garden leave can negatively impact employee morale, result in financial strain, and limit job opportunities. It is important to carefully evaluate whether the garden leave is appropriate for a given situation and ensure that it is implemented in a legally compliant manner. To make informed decisions regarding garden leave, employers and employees may want to consider seeking the services of a financial advisor or legal professional.What Is Garden Leave?
How Garden Leave Works
Benefits and Drawbacks of Garden Leave for Employers
Benefits of Garden Leave for Employers
Protection of Business Interests
Avoiding Litigation
Managing Employee Transition
Potential Drawbacks or Limitations of Gardening Leave for Employers
Cost
Employee Morale
Perception
Legal Issues
Benefits and Drawbacks of Garden Leave for Employees
Benefits of Garden Leave for Employees
Stress Reduction
Time for Personal Development
Better Work-Life Balance
Potential Drawbacks or Limitations of Gardening Leave for Employees
Financial Strain
Limited Job Opportunities
Social Isolation
Garden Leave Clauses
Example of Garden Leave
Legal Aspects of Gardening Leave
Enforcement and Consequences of Gardening Leave Breach
When and When Not to Use Garden Leave
Final Thoughts
Garden Leave FAQs
Garden leave is a period during which an employee is kept away from the workplace while still being paid, usually after giving or receiving notice of termination. The purpose of garden leave is to prevent the employee from working for a competitor, poaching clients or colleagues, or sharing confidential information.
Garden leave can be included in any employment contract, but it is most commonly used for senior management and executives who have access to confidential information and are in positions to cause harm to the company if they were to work for a competitor.
Garden leave can protect the business interests of employers by preventing the employee from causing harm to the company during the notice period. It can also minimize the risk of litigation and provide a smooth transition for both the employer and the departing employee.
Garden leave can provide employees with a much-needed break from work, allowing them to relax and pursue personal development opportunities. It can also improve their work-life balance and provide time to prepare for a new job or search for new employment opportunities.
Employers must ensure that the terms of the garden leave are clearly outlined in the employee's contract and that the employee's rights are not being violated. Employers must also ensure that garden leave is implemented in a legally compliant manner to avoid any potential legal issues or lawsuits.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
