Key facts
- US companies are considering garden leave as an alternative to non-compete clauses.
- Garden leave agreements require employees to be paid while restricted from working for competitors.
- The FTC's new rule banning non-competes is set to take effect on September 4, 2024.
- Garden leave is more common in the UK and Europe than in the US.
US companies are reportedly looking to 'garden leave' agreements as a way to circumvent the Federal Trade Commission's (FTC) upcoming ban on non-compete clauses. While the FTC's rule, published on May 7, 2024, and scheduled to take effect on September 4, 2024, aims to restrict employers from using non-competes, legal experts suggest that garden leave provisions could serve as an alternative.
Garden leave, more prevalent in the United Kingdom and Europe, involves an employer continuing to pay an employee for a set period after their tenure ends. During this time, the employee's access to company information, facilities, and colleagues is limited, and they are prohibited from joining a competitor. The FTC has indicated that such agreements are compliant with the new rule, provided the employee remains employed and receives regular compensation and benefits.
While garden leave offers employers protection against immediate competition and client poaching, it comes at a significant cost due to continued salary payments, especially for highly compensated executives. The duration of garden leave typically ranges from one to six months. Employers considering this alternative must also ensure compliance with any applicable state laws that may further restrict such agreements.