Garden Leave Definition

What Is Garden Leave?

A garden leave refers to the period of time during which an employee stays away from the workplace, or works remotely during the notice period. The employee remains on the payroll and is in the process of terminating their employment, but is neither permitted to go to work nor to commence any other employment during the garden leave.

Understanding Garden Leaves

Garden is a term most commonly used in the financial industry in the U.K., Australia, and New Zealand. Massachusetts passed a garden leave clause into law in 2018, making it the first state to do so in the U.S.

While the name garden leave may sound pleasant—and in fact, an employee may sometimes prefer to serve their notice time relaxing at home rather than being in the workplace—the restrictive nature and negative implications of this leave can make it less than ideal.

Garden leave is a protectionist measure used by an employer when an employee is terminated or when they tender their resignation. Once in effect, it often prevents the employee from being involved in any work activity for their current employer, and typically restricts them from either taking on another job or working for themselves. An employee is generally likely to spend their time pursuing hobbies such as gardening—hence, the term garden leave. Salaries and benefits continue until the end of the leave period.

Garden leave is sometimes considered to be a euphemism for being suspended and can be perceived to have negative connotations such as the employee being unfit for anything other than tending to their garden. Garden leave is also similar to a non-compete clause. Under this type of clause, an employee promises not to work for their current employer’s competition for a specific period of time after their employment period is over.

Reasons for Instigating a Garden Leave

Following the resignation or dismissal of an employee, an employer may decide to place the employee on garden leave. The primary reason for doing so is to safeguard against possible detrimental actions or behavior that the employee might indulge in during their notice period.

The employer may fear that the employee could become uncooperative, or that they may negatively influence the working environment and other employees. The employer may also prefer that the employee limit contact with clients for fear the employee may persuade clients to follow them to their new employer.

Another reason for implementing a garden leave is that the employee may have access to up-to-date information that could be beneficial to the employer’s competitors. Placing an employee on garden leave could help ensure that by the time the employee is contractually free, they would have been out of the loop long enough to reduce any possible threat.

Garden leave can be an employer’s way of taking the employee off the market for a period of time, which is why some employers may opt for this method, rather than ending the employment abruptly with a cash settlement in lieu of notice.

When and When Not To Use Garden Leave

There are times to consider a garden leave, and there are times it is not suitable. A garden leave is to be used when a worker’s employment term is being brought to an end for any reason. The first step in evaluating whether to use a garden leave is to consider the implications of the employee’s departure. Questions to ask include:

• Will the employee’s departure expose the business to risk?
• What will the transition period look like as the employee leaves the company?
• Are there legal restrictions in place preventing a garden leave?
• What will the garden period duration be, and why should it be this long?

Due to the expense of carrying an important employee that is not working, companies should be mindful when imposing a garden leave. In addition, companies may find themselves legally unable to impose a garden leave. Therefore, when determining whether or not to place an employee on a garden leave, a company must analyze the financial implications, legal restrictions, and business usefulness of temporarily retaining the employee.

Rights and Obligations

An employee is entitled to their salary and benefits during garden leave, but depending on their employment contract, may not be eligible for bonuses or accrual payments.

During a garden leave, it is typical for an employee to be prevented from accessing the employer’s data and computer system, and to be prohibited from contacting clients, suppliers, or fellow employees. The employee will usually be required to return company property such as laptops, smartphones, or vehicles during this period.

While on garden leave, the 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.

Garden Leave Clauses

An employer does not need to put a garden leave clause in a contract during the on-boarding process when a new employee is hired, but they are recommended in certain cases. Some contracts, especially those for senior management and other executives, often come with a well-drafted garden leave clause. If a company decides to put the leave in effect without one, it opens itself up to a breach of contract dispute.

Signing a contractual clause may be problematic in some cases. Employees who don’t receive a regular salary, and work on a bonus or commission basis may be able to dispute a clause since their incentive is based on their work activities. These cases may result in disputes—even lawsuits—between both parties.

Pros and Cons of Garden Leave

Employer

There’s a number of reasons why a company may consider implementing a garden leave. It is ultimately a defensive mechanism that makes sure an employee is still available during a transition period. It can also be used to manage the goodwill and relationships with clients as an employee departures.

During a garden leave, the departing employee often has restricted physical access to the building, files, or confidential company information. This protects a company if it is concerned about illicit use of this information as an employee leaves.

The downside to this is primarily the cost. An employer must continue to pay an employee during garden leave; if that worker is a C-suite executive, the company is paying very high salary costs to retain someone who is producing little to no work. There are also legal considerations to balance, public perception to manage, and ongoing risk of employee retaliation even when still under contract.

Employee

From an employee’s standpoint, much of the opposite is true. The employee has meaningful, paying employment via the terms of employment through a specific contract date. During this employment period, the employee’s responsibilities are often decreased. An employee is often allowed to search for a new job during this period, though there are limitations on starting a new job while on garden leave. An employee is often still entitled to commissions and bonuses during garden leave.

On the downside, employees may be restricted on what they do such as start a new job or work for a competitor. An employee may not find personal satisfaction in getting paid but not being able to contribute to the success of an organization. An employee may end up leaving a company with a bad taste in their mouth if they are cutoff from socializing with peers in which they have developed relationships with.

Garden Leave in the U.S.

Massachusetts passed the garden clause provision into law in mid-2018, making it the first state in the United States to give workers paid leave after leaving a job, according to the Associated Press. The new law states employees are entitled to at least 50% of their base salary during the garden leave.

In 2021, Illniois passed the Illinois Freedom to Work Act (IFWA). Though the IFWA never mentions the phrase « garden leave », it does restrict Illinois employers regarding their ability to bind employees to non-compete and non-solicitation agreements. In turn, this legislature would impact the limitations that can be placed on an employee while on garden leave.

Though present in New York financial industries, garden law is still explicitly prohibited in many cases. For example, the New York Rules of Professional Conduct published by the New York State Bar Association outlaws garden leaves. This rule prevents an agreement that prohibits a departed lawyer from practicing law for any given period of time following his or her withdrawal from the firm.

Example of Garden Leave

The Securities and Exchange Commission (SEC) publicly posted Exhibit 10.3 related to the separation agreement between uniQuire, Inc. and its former Chief Operating Officer. In August 2019, it decided to part ways with its employee. In the cited agreement, the separation letter called for several items including:

• A garden leave period between August 19, 2019 and August 31, 2019 (the official date of resignation).
• The garden leave period will result in the COO not having access to the company’s facilities or electronic systems.
• The garden leave period will call for reasonable consultation and assistance as needed in support of the Chief Executive Officer.
• All business transacted on behalf of the company during the garden leave period should be with company officers only.

The Bottom Line

To protect company assets and preserve business interests during an employee departure, a company may place an outgoing worker on a garden leave. This paid recuse from work often reduces the employee’s scope of work prior to their pre-planned resignation. In addition, the employee will face many restrictions on what they can do, what they can access, and who they communicate with prior to their departure.