A garden leave policy is standard at many high-profile organizations but they are not as common as non-compete clauses. Considering that non-compete clauses are going out of fashion both socially and legally, garden leave regulations are a useful alternative for businesses that see the need to safeguard company secrets when an employee leaves. HRDive believes that these policies could see great value as noncompete alternatives and we’re inclined to agree.
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What Is a Garden Leave Policy?
A garden leave policy is a measure that companies can employ to ensure that employees do not work for a competitor company or start a business immediately after leaving the organization. As compensation for restricting their future employment opportunities, organizations offer pay and other benefits for the duration of the restriction. Employees are restricted from coming to the workplace during the period, but they continue to receive the benefits of being employed. A garden leave policy is put into effect when an employee enters their notice period whether due to their own desire to resign or when the company terminates their employment.
Garden leave regulations allow a company to get their internal matters in order and close pending projects and deals while ensuring that employees do not make use of their knowledge of the internal workings during that time.
Garden Leave Benefits—Both Employers and Employees Gain from These Policies
Enforcing a garden leave policy can be expensive for an organization, which is the main reason companies hesitate to enforce it. When garden leave regulations go into effect, the employer has to continue to pay the employee for essentially doing nothing. This can feel wasteful for the organization, especially when there is the added expense of hiring and employing their replacement. The company gets caught paying double the wages for a one-person job. Despite this, protecting trade secrets or the details of an ongoing deal may take precedence and be significantly more valuable than the expenses on the outgoing employee’s salary.
Data protection isn’t the only benefit of garden leave policies. This noncompete alternative has other uses for employer and employee both.
Garden leave benefits for employers:
- Ensures confidential data is protected in the immediate months of an employee leaving the company
- Keeps the employee away from the workplace during their notice period and prevents them from learning any new details about an open project
- Ends the employee’s time on a positive note as the employee is given some downtime to plan their next career move without the pressure of zero income
- Maintains team dynamics when the workflow and morale of the team are still preserved, and employees can hand over their responsibilities more gradually
- Allows the company to retain the outgoing employee’s expertise briefly to help onboard the incoming employee—transition responsibilities can be executed smoothly
- Prevents the employee for sharing any information publicly that might tarnish the reputation of the company
- Maintains client relationships to ensure an employee who moves out of the company leaves gradually instead of terminating contact all of a sudden and leaving their project unfinished
- Reduces any legal concerns surrounding employee dismissal by providing sufficient compensation.
- Works as a noncompete alternative in regions where it is now to be banned
Garden leave benefits for employees:
- Reduces pressure on an employee to find a new job immediately so they can be more mindful about where they apply and what shape their career takes next
- Allow employees to catch up on some rest in between roles considering their financial needs are still being addressed
- Gives employees time with their families and lets them invest in hobbies or their own personal health which they may not have had time to get to earlier
- Allows employees to adhere to the principle of noncompete clauses while still earning a living
- Provides an employee with some downtime to work on themselves and invest energy in professional development courses or other skilling programs to improve themselves, which would have been hard to do with a full-time job
- Gives employees room to negotiate their contract with the next employee better when they have a frame of mind where they are in control and not helpless enough to accept whatever role is offered to them
Garden Leave Regulations—FTC Alternative to Non-compete Clauses
On April 23, 2024, the Federal Trade Commission moved to ban noncompete clauses for the majority of U.S. workers. The proposed rule was initially put forth in January 2023, and it received over 25,000 comments in favor of the ban, pushing the FTC to start reviewing the regulations in earnest. It determined that non-compete clauses were an unfair method of competition and violated Section 5 of the FTC act, “inhibiting efficient matching between workers and employers” and negatively impacting competitive conditions in the market.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned. The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
— FTC Chair Lina M. Khan
According to the FTC’s own suggestions, trade secret laws and non-disclosure clauses were sufficient to provide employers with the means to protect sensitive information without restricting their employees’ career choices. They state that banning noncompetes with result in higher earnings for worker who will no longer be restricted in their employment choices, adding an additional $524 USD per year to their income. “The final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule” as per their calculations.
Why Should You Move Away from Noncompetes?
The FTC ban on noncompetes will go into effect in August 2024 and not only will it prohibit the signing of noncompete agreements, but existing contracts will become unenforceable as well. The only exception to the rule will be contracts with senior executives—those “earning more than $151,164 annually who also are in a policy-making position,” according to CNN. Despite the majority of the population being in favor of this move, many businesses rose in opposition of the decision, with the U.S. Chamber of Commerce moving to sue the FTC for exceeding its authority and daring to show governmental forces interfering with business practices.
Whether the legal restrictions go into effect or not, it is clear that employees remain united against these contractual obligations. Organizations that have any degree of sympathy and appreciation for their employees should look for noncompete alternatives that do not infringe upon their employees’ rights as individuals.
If an organization cannot find the resources to invest in a garden leave policy, they should turn to nondisclosure agreements as a way to safeguard their interests instead. These regulations sufficiently restrict employees from exposing sensitive details while giving them the freedom to move on to other opportunities. Garden leave policies offer a considerable number of benefits and they show the company in a favorable light no matter whose perspective you see the situation from. If you’re exploring the option of putting checks in place to protect your data, consider exploring garden leave regulations instead of noncompetes.