Using Garden Leave for Departing Employees

I started writing about garden leave in Thoughts on Central Indiana Podiatry, Non-Competes, Garden Leave, and Physician Employment Contracts as an alternative to non-compete agreements. I make the following conclusions about garden leave:

1. Garden leave has a use in Indiana employment law and no apparent obstacle stands in the way of using garden leave in Indiana.
2. Garden leave compliments but does not replace a non-competition agreement.
3. Garden leave applies only to salaried employees and has no place in commission-only employment situations.
4. Garden leave requires a written contract but then so do non-competition agreements.
   

I have a definition of garden leave in my earlier article, but let me use here this description from Garden Leave: Helping Employers Control The Prickly Landscape Of Employee Departures:

Garden leave, while evoking images of flower-filled paths and rose gardens, is actually an English legal doctrine in which an employer pays a departing employee to stay at home without performing any duties for a specified notice period. During this time, the individual remains an employee and cannot work for a competitor.

Nor am I the only American who thinks these tools have use here. Anthony Cerminaro published Consider Garden Leave Employment Termination Clauses on his BizzBangBuzz blog. Which provides a link to American employers starting to learn how to garden from PLI. Even earlier is one law review article on this subject: Note: Garden Leave: A Possible Solution to the Uncertain Enforecability of Restrictive Covenants, 102 Col,L.Rev 2291 (2002). Columbia University Law School kindly put this article online. This note reviews the then current English law on the subject. From what I have found elsewhere, I think the writer does a good job of examining the law on the subject. All favor importing garden leave clauses into employment contracts.

Some attorney (or more likely some firm) has already begun to implement garden leave provisions in employment contracts. I found the following example of an American garden leave clause in Bear, Stearns & Co. Inc. v. Sharon (Dist. MA, April 4, 2008) (PDF format)

A notice provision of not less than 90 days - which means that although you remain an employee at will, if you decide to leave Bear Stearns you must give prior written notice of your intention to leave. Once notice is given, for the ensuing 90 days ... Bear Stearns will pay your base salary, during which time you may be asked to perform all, some or none of your work duties in Bear Stearns’s sole discretion. The notice period is enforceable by a temporary restraining order which Bear Stearns can enforce in court.

I plan on a bit more discussion of this case in another post, but the plaintiff lost obtaining a preliminary injunction because of the at-will employee language. Which goes directly to a most important point: these clauses must be drafted carefully. I plan another post on drafting issues.

(A somewhat longer, Swiss contract that discusses garden leave is located here but which adds nothing to the discussion in this post).

Because of the Bear Stearns case, one American writer has less enthusiasm for garden leave clauses. Practicng Law Institutes's In Brief Blog published Garden Leave with the following conclusion:

So, while employers may want to send certain employees to the garden, as they do in the U.K., unless the employees are to the manor born, good luck trying to enforce the deal. The employee may just be gardening for someone else.

OneCle has a proposed form including this garden leave clause:

Each SMD shall be placed on garden leave status for a period commencing on the day following the conclusion of the ninety-day Notice Period and continuing for ninety days thereafter (the “Garden Leave Period”). During the Garden Leave Period, each SMD shall continue to receive his or her base draw and benefits, subject to the payment of related premiums, but shall not receive or participate in any profit sharing or bonus arrangements (including participation in the carried interest program). During the Garden Leave Period, each SMD shall not be required to carry out any duties for or on behalf of Blackstone. Each SMD agrees that he or she will not enter into any employment or other business relationship with any other employer or otherwise prior to the conclusion of the Garden Leave Period.

I read the British materials as the issues raised in the Bear Stearns case have already been considered. See Garden leave and JaneE Mulchay's GARDEN LEAVE (PDF format). Let us remember that Indiana's law on non-competition was ultimately derived from English sources.

Looking at this other garden clause, I do not understand why the Bear Stearns' clause contains the at will employment phrase. I see the problem raised by the Bear Stearn's case as going more to the issue of drafting the contract and little to do with the availability of garden leave.

Indiana businesses using non-competition agreements need to consider adding a garden leave clause to their contracts. My next article on garden leave discusses what businesses ought to use garden leave and why.