Garden leave: what it is and when to use it

Trade secrets and proprietary information are just two examples of confidential information businesses may want to protect from departing employees in order to prevent them from passing the information on to competitors. The same goes for important business contacts and connections to coworkers whose exit would be a significant loss for the business.

One way of ensuring that employees cannot access confidential information or poach clients and customers when leaving is to place them on garden leave. How does garden leave work? What restrictions apply to businesses when trying to enforce a garden leave clause? Under which circumstances should businesses consider using garden leave?

Garden leave (also known as gardening leave) is a type of leave employees are sometimes required to take by their employer upon employment termination. When an employee is sent on gardening leave, it basically means that their employment is suspended on full pay until the end of the notice period.

The main motivation for businesses to place an employee on garden leave is to keep them away from company systems, information, and operations until their official last day, while simultaneously ensuring that they adhere to any existing contractual restrictions regarding confidentiality, fidelity, and more. The employee is therefore only able to start a new position once his or her garden leave is over.

Garden leave vs. notice period

Garden leave and notice period are two different things. The notice period determines how far in advance either employee or employer have to notify the other party in case of resignation or dismissal. It covers the time span between the receival of the letter of termination and the employee’s last day at work.

The length of the garden leave period may be the same as the employee’s notice period. When employees are dismissed and told by their employer to stay away from work, the leave period usually begins on the day of the dismissal notice and finishes the day the employment relationship officially comes to an end.

Garden leave vs. severance pay

Garden leave is not to be confused with severance pay. Severance pay (or severance package) is money and/or benefits that employees receive from their employer after their employment is over. It is offered on top of an employee’s final pay as a gesture of goodwill—especially to employees who have been made redundant. In some countries, offering severance pay to employees whose length of service exceeds a certain number of years is a legal requirement.

Garden leave vs. payment in lieu of notice

Another term that often comes up when negotiating an employee’s exit is payment in lieu of notice (short: PILON). PILON is different from gardening leave because it puts an immediate end to the employment. The moment the dismissed employee receives PILON, his or her employment is over and he or she is free to move on to a new position.

When put on garden leave, on the other hand, employees are specifically asked not to come to the office anymore while still being officially employed and receiving their regular pay. When offered PILON, employees receive the total amount they would have earned until the end of their notice period in one lump-sum payment.

‘Is garden leave a bad thing?’ is a common question among employers and employees. In order to answer this question, it’s necessary to look at the different pros and cons of sending an employee on garden leave.

Pros of garden leave

Placing an employee on garden leave does have its benefits, notably:

• Since the employee is still on the business’s payroll, he or she is still available for questions with regard to the handover of duties to his or her successor.

• As long as the employee is officially employed by the business, he or she is legally bound by the provisions of the employment contract.

• When employees are not admitted to the office anymore, they can’t access confidential or sensitive information they could use to cause damage to the business.

• Asking employees to stay away from the office while keeping them employed until the end of their notice period delays the moment in which the employee can start working for a competitor or set up their own business.

• If the main reason for introducing garden leave is the concern that the employee might convince clients and/or former coworkers to break ties with the company, the employer can use the leave period to work towards retaining key staff and important clients.

Cons of garden leave

Despite the usefulness of garden leave as a protective measure, there are also some drawbacks to it. Businesses shouldn’t enforce garden leave periods too carelessly because:

• It basically means paying an employee who is not doing any work for the company, which means wasting a considerable sum of money;

• There are certain legal risks when placing an employee on garden leave if there is no specific garden leave clause in the individual employment contract;

• Putting an employee on garden leave without his or her prior consent might result in breach of contract and put the business at risk of a potential lawsuit;

• Enforcing a garden leave period that exceeds a certain length of time can be difficult from a legal perspective;

• Depending on the individual circumstances, the act of putting an employee on garden leave might have repercussions on employee morale and company culture.

The main reason to consider sending an employee on gardening leave is a potential confidentiality risk. A common use case of garden leave is when senior or key employees leave the company to take a position with a competitor. 

By putting the employee on gardening leave, the business essentially tries to prevent the employee from poaching colleagues or clients or from accessing proprietary information that could be useful for competitors. A garden leave clause is typically only invoked for senior employees with access to confidential information, members of the C-level management, or employees in key sales positions.

The idea is to put a buffer between the current and the future employment to allow for enough time to pass that any sensitive information regarding new business ventures, product releases, and more will have lost its value by the time the restrictive covenants linked to the garden leave come to an end.

In a nutshell, garden leave is an option businesses should take into consideration when there are confidentiality or security concerns or when their legitimate interests are at risk.

Depending on the circumstances of the dismissal, businesses may need to be very careful when sending the dismissed employee on garden leave. Here are a few tips on how to manage gardening leave seamlessly:

• Develop a gardening leave strategy: Having a firm strategy in place ensures that the same procedures are followed every time an employee is placed on garden leave, which prevents compliance slip-ups.

• Get legal advice: Especially when it’s the first time the business places an employee on gardening leave, consulting an employment law expert can prevent legal headaches further down the line.

• Draft clear clauses for employment contracts: Garden leave clauses should be very clear about the conditions that apply during the leave period. They should clearly outline what is expected of the employee when placed on gardening leave.

• Be reasonable with regard to the extent of garden leave: Garden leave can be a useful tool for businesses when terminating senior staff and key employees, but the provisions of the garden leave clauses as outlined in the respective employment agreement should only go as far as to protect the business’s legitimate interests. The employee shouldn’t be restricted in his or her options for starting a new position more than absolutely necessary.

• Monitor compliance: Legal provisions regarding garden leave are subject to change, which is why businesses should keep up to date with any legal changes that may affect their options of enforcing garden leave. Also, procedures should be designed in a way that avoids discrimination of any sort.

The term ‘garden leave’ is primarily used in the UK, Australia and New Zealand. But the concept exists in other countries as well, only with varying regulations and restrictions and often under a different terminology. One example is the United States where garden leave is slowly gaining traction.

In 2018, Massachusetts passed a law that provides a legal basis for placing employees on garden leave, making it the first state in the U. S. to do so. However, the law only requires employers to provide 50% pay to employees during their non-compete period. 

Other states in the U. S. that have legislative frameworks in place that have an impact on an employer’s options for keeping a dismissed employee away from work and preventing them from working for a competitor include New York and Illinois. However, these laws are primarily designed to limit the restrictions that can be placed on employees in the context of a non-compete clause.