What Is Garden Leave in an Employment Contract?
Garden leave is an employment practice where an employee who gives notice is paid during the notice period, but required to stay away from the workplace.
Garden leave is a period of time during which an employee remains away from work or works remotely while serving out a notice period. The employee remains on the payroll and continues the process of severing their employment. However, the employee is not permitted to return to work or begin any other employment while serving the garden leave phase. The term garden leave may sound appealing. And, many employees may choose to spend their notice time resting at home rather than at work. However, the limiting nature and negative ramifications make it less than desirable.
Garden leave is known as gardening leave in the United Kingdom, Australia, and New Zealand. The term is typically used in the finance industry. In the USA, Massachusetts became the first state to enact a garden leave clause in state employment statutes.
Garden Leave – A Closer Look
Garden leave is a defensive tactic implemented by an employer when an employee is terminated or resigns. Once in place, it frequently inhibits the employee from engaging in any work activity for their current company. However, it also typically prevents them from taking on another job or working for themselves. An employee is more likely to spend the severance period engaged in leisure activities around the home. As a result, the term garden leave emerged. Salaries and other benefits continue until the severance period is over.
Garden leave is occasionally used as a euphemism for being suspended. It can also be interpreted negatively as if the employee is unfit for anything other than tending to their garden. Garden leave has similarities to a non-compete agreement. In this type of provision, an employee commits not to work for the competition for a specified amount of time after their current employment period ends.
Reasons for Instigating Garden Leave
Following an employee’s resignation or dismissal, a company may elect to place the person on garden leave. The primary purpose for doing so is to protect against potentially harmful acts or conduct by the employee during their notice period. Some businesses may choose this method over terminating the employee abruptly with a monetary payout in place of notice.
- Negatively impact employee morale – The company may be concerned that the employee will become recalcitrant, or that they may have a detrimental impact on the working environment and other employees.
- Limit client interaction – The employer may also prefer that the employee minimize interaction with clients for fear of convincing them to follow them to their new employer.
- Cut-off access to proprietary information – Another argument for instituting gardening leave is that the employee may have access to current information that could be useful to the employer’s competitors.
- Cooling-off period – Placing an employee on gardening leave may assist ensure that by the time the individual is contractually free, they have been out of the loop long enough to mitigate any potential harm. Gardening leave can be an employer’s technique of taking an employee off the market for a length of time.
Garden Leave – How the Employer Benefits
Employers typically use garden leave for strategic reasons. Placing an executive on garden leave safeguards the employer’s business. The practice allows the firm to remove the employee from its operations for the duration of the notice period. This keeps the worker away from clients, colleagues, and proprietary information. It also stops the employee from starting a new job with a competitor or starting their own competing business. It is frequently used for senior personnel who have more access to restricted or private information. Or, to deal with an employee who has accepted a new position with a competitor.
The employee is still under contract during the garden leave period. As a result, they are obliged by all contractual provisions, including a duty of confidentiality. The ultimate goal of garden leave is to keep the person out of the marketplace long enough for proprietary information to become obsolete. Or, for the employee’s successor to establish themselves, particularly with customers, in order to protect goodwill.
Cost of Protection
However, garden leave protection comes at a significant cost. The firm must provide continuous income and benefit payments until the notice term is effectively fulfilled. Employers must ensure that benefits such as private health insurance or equivalent continue until the employee’s job ends. There are other considerations as well. For example, if the employee in question has a company car, phone, or laptop. Whether you must continue to provide these will depend on whether they are a benefit or a tool of employment.
Also for consideration is whether you may expect the person to perform anything work-related while at home. Typically, anything the employee has for commercial use must continue to be provided if work-related activities are required. Employees continue to collect vacation time while on garden leave, even if they are not working. Employers may be able to ask them to take any accrued vacation during their notice period. However, vacation usually continues to accrue right up to the actual termination date.
Employee Rights and Obligations
During garden leave, an employee is entitled to their income and benefits. However, depending on their employment contract, they may not be eligible for bonuses or accrual payments. During a gardening leave, an employee is typically barred from accessing the employer’s data and computer system. Additionally, they can be restricted from contacting clients, suppliers, or coworkers. During this time, the employee is frequently expected to surrender business property like laptops, smartphones, or vehicles. While on gardening leave, the employee is expected to be available if the employer needs information, assistance, or even to return to work. As a result, unless allowed by the existing employer, an employee should not intend to travel on gardening leave.
Garden Leave Clauses
An employer is not required to include a garden leave clause in a new employee contract. Nevertheless, it is advised in some instances. Contracts for senior management and other executives frequently include a well-written garden leave clause. If a corporation decides to implement the leave without one, it risks a breach-of-contract dispute. For example, employees who are paid on a bonus or commission basis and do not receive a regular wage may be able to contest an imposed garden leave. This is because their incentive pay is based on their actual work activities.
Overall, a precise contract suited to your company’s specific needs is usually a smart idea. It avoids any future claims of contract breach and clarifies for both parties what garden leave would entail. However, it is always worth seeking legal counsel. Businesses may find themselves in a difficult position if proper protocols aren’t followed when placing employees on garden leave. The process isn’t always as simple as it appears.
Even when you do have a gardening leave clause in place, it doesn’t guarantee things will run smoothly. While many view this period as a welcome opportunity to pursue a hobby or relax and regroup, at the old employer’s expense, it can be a frustrating time for an employee who wants to get on with their new job or who feels that his/her ability to deliver for the new employer is prejudiced by being kept out of the market. Employees can seek to challenge garden leave by refusing to comply with the old employer’s requirements and starting employment with the new employer regardless. The old employer is faced with letting the matter pass or suing for damages, which is often a lengthy, complex and costly process. (Source: legal-island.com)
Garden Leave in the U.S.
Massachusetts passed the garden clause provision into law in mid-2018. That makes it the first state in the United States to give workers paid leave after giving the notice to leave their job. The term gardening leave originated in the UK. It gained popularity in the US when Massachusetts made an official move to turn this practice into law in 2018. Under this new law, employees who resign and have a contract with a garden leave clause must receive at least 50% of their base pay.
Gardening leave is a form of legal protection that companies take when hiring senior executives or employees who are given access to trade secrets and highly classified information. It originated in the UK and gained popularity in the US when Massachusetts made an official move to turn this into law in 2018. Under this new law, employees who resign and have a contract with a gardening leave clause get at least 50% of their base pay. (Source: lingoda.com)
Garden Leave in New Zealand
Gardening leave can be beneficial when both the employee and the company agree to use it and depending on the situation. However, employers should exercise extreme caution if the employee wishes to remain at work. An employee has the right and the obligation to come to work. An employer cannot request that an employee take garden leave unless both sides agree. The agreement should include a garden leave clause in the employment contract having been signed in good faith.
If the employment agreement does not include a provision, an employer should not place an employee on gardening leave without their consent. Garden leave should not be used to circumvent the suspension requirements. In other words that there are appropriate grounds for suspension and the right process has been followed. While on garden leave, employees must continue to adhere to all of their job terms and conditions.
Garden leave is not referred to in employment legislation. However, provisions in specific employment agreements may be general or specific. With any garden leave provision, the employer will still need to act fairly and reasonably when enforcing the provision. Specific clauses refer to garden leave being taken in a limited circumstance, eg a clause that states the employer may direct an employee not to report to work, undertake work-related duties, or contact clients, customers, or suppliers during their notice period (but that the employee will receive their full pay for this time). General clauses give the employer the ability to direct an employee not to report to work or do work-related duties at any time and for any reason (but the employee will receive their full pay for this time). (Source: employment.gov.nz)
Garden leave typically occurs from the time a person gives the notice to leave a company to when they officially are no longer employed by that company. During a garden leave, an employee may be obliged to work remotely and may be forbidden from contacting other employees, clients, or vendors. Garden leave can be used to preserve a company’s interests by keeping critical information away from competitors. It can also reduce harm when an employee, particularly a high-level employee, leaves on less-than-cordial terms.
However, this employment practice comes with a price tag to the company. This is because an employee is entitled to at least a portion of his or her pay and benefits while on leave. As a result, an employer is essentially paying them to do nothing or very little when handled this way. This may be less expensive than firing an employee and maybe paying a large severance compensation. However, it is still a significant expense.
Up Next: What Is Unencumbered?
Unencumbered is used to describe an asset or property that is free and clear of creditor claims, judgments, liens. mortgages, or obligations.
If a person is unencumbered, they are free of baggage. As a result, they don’t have anything to carry or they are emotionally carefree. Similarly, an unencumbered asset is free of any excess baggage. There are no outstanding liens, claims, or financial obligations.
Examples of unencumbered assets include houses free of mortgages or other liens, cars with paid-off loans, and stocks purchased in a cash account. When a property is unencumbered, there are no liens or claims from creditors to impact the value or the owner’s right to sell it. As a result, unencumbered assets are easier to sell or transfer than encumbered assets. Unencumbered assets can be any sort of personal property. However, the term commonly refers to real estate. A title search will usually be performed before you close on a home. This guarantees that the property is unencumbered and free to transfer to you, the new owner.