The “Garden Leave” Clause

Meaning

The colloquial term – ‘Garden leave’ is used by an employer who does not require the exiting employee to attend his work in the workplace but is still paid his usual remuneration post his resignation. When the employee has resigned, and the contract of employment has a clause of garden leave, the employee is required to stay at home and not attend work. You remain an employee throughout the garden leave. And the employee is still, contractually part of the organization, hence cannot join anywhere else. It is a sort of a paid leave to ensure that the employee does not possess or share any sensitive information that may be potentially used by competitors[1].

Analysis of the Garden Leave Clause

The concept of the "Garden Leave" clause derives from the British employment laws. The term refers to a provision in an employment contract under which an employer pays a former employee to stay at home for a certain period after separating from employment. During the restricted period, the employee may not work for any of the competitors[2]. Under garden leave clauses, the employee promises to provide the employer with a relatively long period of notice (usually three to twelve months) before terminating the employment and moving on to a competitor. In exchange, the employer agrees to pay the employee's full salary and benefits during this period without requiring the employee to come to work[3]. During this leave, the employee will not have access to the important information of the employer. Eventually, that information will turn out of date and will thus not be of much importance. This arrangement has been called "garden leave" because the employee will stay home and work in his garden during this period while remaining financially secure.

Thus, the stark difference between the garden leave clauses and the restrictive covenants is that the employee is paid the salary, and he also remains the 'employee' of his former employer. Indeed the garden leave clause is now to a greater extent enforceable by the English Courts in comparison to the traditional restrictive covenants. Such policy actually harms business and competition rather than strengthening it[4].

Benefits of The Garden-Leave Clause

Three immediate benefits of garden leave from the employer's perspective are:

1. Prevent Poaching- The garden leave clause has a direct effect on poaching philosophy. It does not allow the separated employee to join any organization during this period. Hence, competitors will be barred from poaching your HiPos through this strategy. Earlier, this was used for top executives and leaders in financial roles, specifically in the BFSI sector. It is now being picked up by other industries for various niche roles and highly specialized skilled employees[5].
2. Used As A Retention Tool - As per a garden leave clause, an employee cannot join another company for a specific period as per the contract terms. This clause has been used earlier mainly to retain top management, especially in financial sectors. But nowadays, tech and consumer companies are also using it as a retention tool by ensuring a good time lag between timelines to join the next organization. These clauses, once enforced, are generally non-negotiable and hence are being used by leaders in the organization for retaining their top employees[6].
3. Safeguarding The Company’s Sensitive Information - These clauses enable the employer to remove the resigning employee from his active duties. This minimizes various communication channels with their clients, restrict access to sensitive data and company documents etc., till the information in his possession goes out of date[7]. All of these helps to prevent data breach issues with respect to sensitive information that can otherwise be passed on even unintentionally[8].

[Profile of the Author-Priyanka Jaiswal, 4th Year, National University of Study and Research in Law, Ranchi.]

[1] Nitish Desai, ‘Employment Contracts in India,' Enforceability of Restrictive Covenants (February 2018), P.39.

[2] Greg T. Lembrich, ‘Garden Leave: A Possible Solution to the Uncertain Enforceability of Restrictive

Employment Covenants’, Columbia Law Review, Vol. 102, No. 8 (Dec., 2002), P. 2291- 2315.

[3] Ibid at P. 2320.

[4] Polymer Papers Limited v. Gurmit Singh & Ors., AIR 2002 Del 530.

[5] Wolf Mountain Coal Limited v. Netherlands Pacific Mining Co Pvt Ltd, (1988) 31 BCLR (2d) 16.

[6] Johnson v Agnew, (1980) AC 367.

[7] Coin-A-Matic (Pacific) Ltd v Saibil et al., (1986), 13 CCEL 59.

[8] Poeton Ltd v Horton, [2001] FSR 169; FSS Travel v Johnson, [1999] FSR 505.