Tuesday, November 10, 2009

Do you know? Garden leave contracts

Last week I attended the ABA’s Labor & Employment Conference. Over the next several weeks, I’ll be sharing with my readers some of the best and most interesting nuggets of information I took away from the meeting. We start today with garden leave contracts.

<div xmlns:cc="http://creativecommons.org/ns#" about="http://www.flickr.com/photos/chasetheclouds/1405314449/"><a rel="cc:attributionURL" href="http://www.flickr.com/photos/chasetheclouds/">http://www.flickr.com/photos/chasetheclouds/</a> / <a rel="license" href="http://creativecommons.org/licenses/by/2.0/">CC BY 2.0</a></div> There is nothing more frustrating for a company than a court refusing to enforce a noncompetition agreement, permitting an employee to work for a competitor. Courts have been historically skeptical about the enforcement of such agreements. In today’s economy it has become even more difficult to enforce them. Judges simply do not want to enjoin a family’s breadwinner from working. At best, the enforcement of even the most narrowly drafted noncompetition agreement is a roll of the dice, dependent as much upon the personal whims of the judge hearing the case as the law of your specific jurisdiction.

So, how do you protect your employees, confidential information, customers, and good will without using a suspect noncompetition agreement? Think about using a garden leave contract.

The concept of “garden leave” originated in the UK. It describes the practice of an employer paying an employee to stay on the sidelines during a set period of time following the end of their employment (the garden being where a UK employee would spend free time). A typical garden leave contract requires a lengthy advance notice of resignation, prohibits certain competitive activities during the notice period, and requires that the employee be sent home but still get paid his or her full salary and benefits during the notice period. Alternatively, employers can modify a traditional noncompetition agreement to provide pay during the employee’s time on the sidelines. The latter, however, carries greater risk as it would still be subject to the same analysis as a traditional noncompetition agreement, albeit with less impact on the employee.

Provided that an employee has enough value, garden leave clauses provide many of the same benefits as a traditional noncompetition agreement – the employer is provided time to replace the departing employee, delay competition by the departing employee, cultivate relationships with clients and customers, and maintain good will. Also, because the employee remains an employee during the paid notice period, concepts like the duty of loyalty (which prohibits solicitations of customers and other employees, as well as the misuse of confidential information) remain in place and protect the employer.

Consider garden leave contracts. They are cost effective, at least as compared to the price of enforcing a noncompetition agreement, and a potentially less risky avenue to obtain the same goals.

Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

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