Garden leave is when an employee who is leaving a company is kept away from work but remains on the payroll. The employee isn’t allowed to accept another job or start a competing business until the garden leave is over.
The practice is mostly reserved for executives and high-profile employees with access to trade secrets, confidential data and client information. Companies pay these employees to sit on the sidelines to prevent them from stealing their clients or revealing sensitive information to a rival business.
Garden Leave Definition
Garden leave is a period of time when an employee who is leaving is required to stay away from work but continues to receive pay. It’s a way for companies to protect sensitive information by keeping the departing employee from immediately joining a competitor.
Paying these high-salary employees might be expensive, but it may be one of the last remaining tools for companies concerned about employees switching allegiances, as non-compete agreements are illegal in several states and were outlawed on the federal level in April 2024.
What Is Garden Leave?
Garden leave occurs when an employee is about to resign or be terminated but remains on the payroll for a period of time. They are cut off from company buildings and electronic systems, and they are not assigned with any work — except possibly ensuring a smooth transition for their successor.
Employees are restricted from working for competing employers during this time, which makes garden leave similar to a non-compete agreement. Non-competes apply to employees after they have left the company, whereas garden leavers are still employees of the company.
The term “garden leave” originated in the U.K, where employees under work restrictions were left with nothing to do but tend to their garden. Indeed, garden leave is more common in countries, like the U.K., that require employees and employers to provide each other with a notice period before separation. Garden leave gives these employers a way to fulfill their notice requirements while protecting themselves against an employee who could try to take detrimental actions on their way out the door.
While the U.S. does not have these notice requirements, some companies may include them in the contracts of senior executives and key employees. If either party decides to separate, the company would pay the employees’ salary and benefits through the notice period. The employee would still have a duty of loyalty to the company and would have to honor the conditions of their employment agreement.
Garden leave has a unique meaning in Massachusetts. In 2018, the state adopted a law requiring employers to pay at least half of an employee’s salary for a non-compete period of no more than a year. Unlike traditional garden leave arrangements, Massachusetts’ law refers to a payout that happens after the employee has left the company. The employee does not owe a duty of loyalty under this variation of garden leave, but is still bound by the terms of the garden leave agreement.
Why Would a Company Use Garden Leave?
Employers use garden leave to protect themselves against employees who might try to access client files or sensitive information, which could be used to poach clients or help a competitor.
That’s why garden leave is most often used with employees who have strong relationships with clients or employees that have inside information. While the employee is on garden leave, those relationships or inside information would typically become less relevant over time.
A company might also use garden leave if they want to ensure a smooth transition from one employee to another. While a garden leave employee doesn’t typically take on much work, they might be asked to finish up a project, introduce their successor to clients and answer any questions the company might have.
It’s an Alternative to Non-Compete Agreements
Companies that want to prevent workers from joining a competitor may find garden leave to be a more viable alternative than non-compete agreements.
Non-compete agreements have been banned by multiple states, and the Federal Trade Commission voted to outlaw them nationwide in April 2024. If the ruling survives a legal challenge from the U.S. Chamber of Commerce, the federal ban would take effect in August 2024.
“The tide is turning against non-competes,” David Siegel, a partner at California law firm Grellas Shah, told Built In.
Even before the bans, non-compete clauses faced scrutiny in the courts. A non-compete would be struck down if the definition of a competing business was too broad, the duration of the non-compete was too long or whether the geographic scope was too large.
Garden leave differs from non-compete agreements on a key detail: the person is still employed by the company, which means they are bound by a duty of loyalty and the terms of their employment contract.
“If you’re keeping somebody employed and paying them their salary, it is fairly easy in most states — even states that frown on non-compete — to have them subject to non-compete obligations during that period,” David Siegel said.
Other Protective Measures
There are other tools for protecting companies against former employees. Companies can sue former employees who share trade secrets with another company, and some states allow companies to sue employees whose new job is so similar it would inevitably lead to the disclosure of trade secrets.
Companies might also prevent outgoing employees from poaching clients and employees through non-solicitation agreements. Non-disclosure or non-disparagement agreements can be used to keep sensitive information confidential, and non-interference agreements can prevent former employees from interfering in a company’s business relationships.
Advantages of Garden Leave
Garden leave gives companies the protections and assurances they desire, and it offers a financial cushion for departing employees.
Advantages for Employers
Garden leave can protect companies on several fronts. It can prevent employees from taking sensitive information to a competitor and bringing clients with them. Additionally, an employee who is being paid is less likely to challenge a garden leave than an unpaid non-compete agreement, and it’s more likely to withstand a legal challenge. Garden leave can also ensure a smooth transition between employees.
Advantages for Employees
Garden leave can also be advantageous for employees. They have the stability of guaranteed salary and benefits, while having the free time to relax, rejuvenate and prepare for their next role. Plus, when an employee already has a job — as one technically does on garden leave — they are more attractive to prospective employers.
Disadvantages of Garden Leave
Garden leave also comes with downsides that companies and workers should be mindful of.
Disadvantages for Employers
The main drawback of garden leave is the cost of paying salary and benefits — typically for a high-paid executive — without receiving any value in return. Drafting a garden leave agreement also requires careful consideration of employment laws, which takes legal resources. While more enforceable than a non-compete agreement, it’s also not guaranteed to be upheld during a legal challenge. There’s also a chance that employees may be turned off by the idea of working for a company that uses garden leave, which would hurt the company’s ability to recruit the best talent in the field.
Disadvantages for Employees
While earning a salary and benefits without any work may sound nice, it can also be frustrating for employees that are eager to capitalize on their career momentum by advancing to their next opportunity. While garden leave doesn’t necessarily have a negative connotation, it might also raise questions or draw suspicions from prospective employers, which could affect an employee’s job search.
Rules for Garden Leave
Garden leave is typically introduced in the employment agreement when the employee is hired. If it isn’t addressed in the original employment contract, the employer and employee would have to agree on the terms of the garden leave in a severance agreement at the time of separation. This is more likely to occur when an employee is terminated, not when they’re resigning.
“It’s pretty difficult as a practical matter to negotiate a garden leave with an employee if the employee is leaving to join a competitor,” Jeffrey Siegel, a partner at Massachusetts law firm Morgan, Brown & Joy, told Built In.
When an employee goes on garden leave, they will be cut off from computer systems, which could give them information that might be useful to a competing business. They will also be prevented from returning to the office, in case they try to encourage other employees to join them in their new venture.
“Cutting them off from systems and employees is important, because they’re on their way out the door,” David Siegel said. “Even though you’re paying them, there might not be the level of goodwill that you think there is.”
Employees on garden leave will continue to receive their salary and benefits, unless otherwise specified in the employment contract or severance agreement. The employee will continue to be an at-will employee, which means they can be terminated at any time.
The employee might not have any work assigned to them, or they might be asked to train their successor or finish up a project. Regardless, they will still have to request paid time off for vacations, because they are still on the payroll and must be available to answer any questions that arise.
The employee can look for new jobs during garden leave, but it would breach the terms of the agreement if they were to start a new job or launch their own competing business.
Frequently Asked Questions
What does it mean if someone is on garden leave?
If someone is on garden leave, it means their employer is paying them to not work. They are in the process of leaving the employer, but they aren’t allowed to work for another company until the garden leave is over.
Is garden leave legal?
Yes, garden leave is legal. Several states have outlawed non-compete agreements, which restrict employees from working for another company after they leave. With garden leave, however, the employee remains on the company payroll, which means they are subject to an employment agreement that prevents them from working for another company.
Can you start a new job on garden leave?
No, you generally cannot start a new job on garden leave. You can look for a new job, but you cannot join another company until the garden leave period is over.
What are the rules for garden leave?
When an employee is on garden leave, they must be available for work within regular business hours, unless otherwise notified. They cannot accept a job with another company, and they should seek the employer’s permission before making travel plans.
What is the difference between garden leave and severance?
Severance is pay that an employee receives after they are terminated, whereas garden leave is typically paid while the employee is still on the payroll. Both forms of payment might come with strings attached, but severance doesn’t usually go as far as garden leave in preventing employees from taking another job.
