Smell the Roses! Garden Leave Provisions in Employment Agreements and Restrictive Covenants

Employers sometimes require employees to provide a specific amount of notice before resigning. This is likely set forth in the terms of an employment agreement. During the notice period, employers may instruct the employee not to come to work, but the employer keeps the employee on its payroll. This practice is often referred to as garden leave.  

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Related Content

• Garden Leave Clause (Employment Agreement)
  See how garden leave provisions can provide an incentive to keep key employees from immediately taking up employment with a competitor after leaving a company. They are often used in this way to bolster or supplement more traditional restrictive covenants and covenants not to compete. 
• Executive Terminations Benefits and Compensation Considerations
  Consider the impact of I.R.C. Section 409A in the context of garden leave provisions. If there is a "separation from service" for Section 409A purposes, an employer would have to pay out nonqualified deferred compensation triggered by that separation from service based on when the executive ceased working rather than when the garden leave ends. If the payment(s) was made based on the end date of the garden leave, there could be an impermissible delay in payment that violates Section 409A.

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