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To Give An Executive Garden Leave?

By Stanley Albrighton, Marble Hill Partners

April 25 2013 - When it comes to an executive leaving the job, it is pretty common that the companies put the executive on garden leave. In such a situation, the executive is paid for the notice period, while being ordered to stay at home and is restricted from business or from working with any other company. Every now and then, there have been debates whether garden leave should be given to a leaving executive or not. In such a case, including the 'garden leave' clause in the executive's employment contract will essentially be a good idea. However, such an inclusion doesn't necessarily mean that the employer can enforce it upon the executive. Therefore, it is considered wise on the part of an HR professional to weigh up the pros and cons before granting garden leave to a leaving executive.

Contractual Terms for Restraint of Trade

The garden leave clause in the employment contract is generally supported by some votive terms. These terms are generally included in order to prevent the executive on garden leave from the following:

  • Using or sharing any confidential business information
  • Discouraging the existing employees
  • Causing damage to the employer's company
  • Contacting potential clients of the employer with a sole aim of poaching
  • Working with a competitor or starting their own business out of enmity

These terms are generally referred to as 'restrictive covenants' and can surely help in convincing the court of law to support the garden leave clause. However, it does not eliminate the legal risks related to the executive's right to receive work.

Why Grant Garden Leave to a Leaving Executive?

For an employer, adding a garden leave clause to the employment contract can be a valuable asset while dealing with a senior executive. It will help the company by preventing the executive from accessing confidential business information. The garden leave clause will also restrict the executive from entering into the employment market, until the notice period is over. This keeps the executive from joining a competitor and minimises the risk of any company-specific data, facts or any secure information being revealed to a competitor. Apart from putting the former executive's availability for as-required interim services, the garden leave clause enhances the company's arsenal of arguments on the basis of which the employer can seek legal help, if the executive does not adhere to the restrictive covenants during the notice period.

Why Not Use Garden Leave Provisions?

Garden leave does not come risk-free or cost-free. In case the garden leave clause is not expressed in the executive's contract, it will count as a breach of contract. The executive might successfully challenge the act of putting them on garden leave in the court of law. In such situations, it is uncommon on the part of executive to sue the company for damages, apart from terminating the performance of the contract and entering the employment market freely. The situation may worsen if the employee's pay generally depends on work, in case of commission or project work, or if working is necessary in order to maintain a professional level of skills, like in the case of surgeons or doctors.

In addition to the legal risk, garden leave also burdens the company with active payment of remunerations. The contract involves a commitment to continue paying the salary and related benefits to the executive, until the notice period is effectively served. There may be certain situations when the employer might feel like reserving the commitment to pay remuneration during the contract period and verge the associated cost. This can essentially weaken the argument of interim services being critical, especially if the garden leave is given to the executive willing to join a competitor company. This could effectively prove that the provision of garden leave is feigned non-compete and could endanger any kinds of enforcement efforts.

On the whole, it makes sense to sanction garden leave to a leaving executive, but only if the employment contracts contain an express provision for it. It serves as a healthy complement to the judicial program through which the company can enforce restrictive covenants to the executive's loyalty towards the business.

About the author

Stanley Albrighton has worked in the interim management jobs market for a number of years and understands the difficulty in handling executive employees for organisations. He currently works for Marble Hill Partners, who help to search for executive candidates.


 


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