“Garden Leave’s Little Secret: It is Not Very Enforceable”

Here’s 18 Smart Steps to Guide You

“Complexity (at work) has opened a great divide between
those who have mastered its requirements and those who haven’t.” 

– Brink Lindsey, in his recent
  book, “Human Capitalism”

ACTUAL “CASE HISTORIES”: Carolyn contacted us when she was about to move from one employer to another. She sought our help going through her upcoming transition. Workplace transitions are our special area of experience and expertise. As we do for all of our clients, we asked Carolyn to send to our office all of her “workplace papers,” including offer letter, all agreements signed, employee handbook and benefit and equity plans and agreements, for review prior to our consultation. 

Our review of Carolyn’s written materials revealed one potential problem: a “Garden Leave” provision existed in her Stock Option Agreement. A “Garden Leave” provision says, in effect: 

“You must give at least 90 days written notice of resignation. During that 90-day period, we have the right to have you stay at home (and ‘tend your garden,’ so to speak) and have no contact with employees or customers. Of course, you cannot work elsewhere during that period. During that period we will pay your salary and provide benefits, but not accrued vacation, sick days or bonus. We have the right to shorten that period if we wish, and let you go sooner.” 

[Note that Garden Leave periods are commonly 30, 60, or 90 days, and sometimes even 120 or 180 days.]

Carolyn said that she was needed immediately by her next employer, and she was certain her next employer would not wait those 90 days for her to begin. From our point of view, having the freedom to work where and when you want to work is a valuable freedom, and should not be given up easily. We counseled Carolyn that, while she had signed an agreement, there was not very much her employer could do to her that should worry her all that much; if her next job was really important to her – and the right to take any next job in the future – she might decide to deliberately ignore the agreement, and then just deal with the “consequences” – if any. 

After discussing the matter with us and her next employer, Carolyn decided to make her move to her next employer, and to take the risks of doing so. As it turned out, they were not all that significant: (a) she had to forfeit about $22,000 worth of stock options, (b) she did incur some legal expense, and (c) she seemed to have “burned a bridge” that was, to her mind, not that valuable a bridge to begin with. Oh, yes: she had a few sleepless nights, too. 

In retrospect, Carolyn’s decision to ignore the Garden Leave agreement she had signed was a wise one. First, though she did receive a rather nasty letter from her employer’s General Counsel that threatened “legal action,” no such “legal action” ever took place. Second, though Carolyn did lose her unvested options, she was confident that the loss incurred would be more than made up by her anticipated increase in compensation from her future employer. Third, though the squabble with her employer did cause her to delay her start at her next employer by two weeks, that did not bother her next employer; Carolyn even enjoyed having some time off. 

Looking back, Carolyn shared our view that, with a few exceptions, Garden Leave is not very enforceable, and agreed that “The only thing you have to fear is fear itself.”

LESSON TO LEARN: In the past ten years or so, employers have begun to use a new technique to protect themselves when employees depart, called “Garden Leave.” First, it acts to deter employees from leaving at once because (a) it makes the next employer wait 30, 60, 90 or even 120 days for them to start, something many employers will not or cannot do, and (b) by keeping the employee bound to them – and out of communication with clients and colleagues – they make it very hard to take clients and colleagues with them. 

The idea behind Garden Leave is rather ingenious, some would say a bit evil, but in practical effect it is not iron-clad, that’s for sure. We have helped many of our clients navigate themselves around the difficulties imposed – or seemingly imposed – by Garden Leave provisions. 

Garden Leave provisions usually, but not always, provide that you will continue to receive salary and benefits, but not receive or accrue (a) vacation, (b) sick days, (c) bonus, (d) commissions, (e) equity vesting, or (f) other payments, benefits or perquisites.  

A Garden Leave agreement is a kind of contract. “So,” you might ask, “how can I just ignore it?” The answer is that, with a few exceptions, there is just nothing an employer can do to enforce it. Here’s the analysis: 

a. Sue for damages? What damages?” The law provides two basic ways to obtain a remedy for a “wrong” that was done. The first is what most people usually think of, and call a “lawsuit for damages.” That is, someone suing someone else for, say, $100,000. This is the first thing that most employers’ lawyers will threaten, almost always as mere “hot air.” 

It is quite rare for an employer to have actual financial damages that result from an employee’s departure. It is possible if, for example, the employee is an opera singer and the opera tickets have already been sold, or an investment banker whose absence is the direct cause of a deal not closing. But in the vast majority of employee departures, there are no direct causal damages. Without direct damages caused by the employee’s early departure, there is no legal basis for a lawsuit. 

Think of it this way: if your car ever-so-lightly bumped into your neighbor’s car’s bumper, and there was no dent or scratch caused by the light bump, and no passengers were injured, there is simply nothing to sue about or for. (That is why they are called “bumpers,” you know.) 

b. Injunction to be sought? To stop what? The second kind of remedy the law makes available to people who have been “wronged” is what lawyers call an “equitable” remedy, usually in the form of an “injunction” or sometimes called “injunctive relief.” This is not a lawsuit for money, but instead a lawsuit to ask a Judge to issue a Court Order demanding that someone stop doing something that is wrong. This is called an “injunction.”

If a labor union is striking in violation of law, a Court can Order the union – by issuing an injunction – to “stop the strike” and get back to work. Or, if a power plant is spewing forth toxic chemicals, a Court can Order the power plant to stop polluting the air, or even stop operating the power plant. But, if you are not working at your former employer, and not yet working for your new employer, what can the Court Order you to stop doing . . . watching TV? Playing golf? Spending time with your children? Hardly.

Sure, if you have transferred trade secrets or customer lists, or asked customers and colleagues to leave your former employer, those could be Ordered halted by a Court – maybe. But if you have not done those things, then there is nothing to “stop doing.” 

In case you are curious, a Court cannot issue a Court Order to force you to work. Ever since this country outlawed slavery, that is simply not an option. 

c. Threaten to sue your next employer? Possibly, but rarely more than a scare tactic. Your employer’s next attempt to “enforce” your Garden Leave agreement may well be by means of a threat – made to you and/or made to your next employer, if your present employer knows who that is – to sue your next employer for some vague offense, sometimes called “tortious interference.” This is almost always nothing but a baseless threat, without meaning or effect. While there is a kind of legal claim called “tortious interference,” it is not commonly accepted by Courts, and is even less commonly successful: 

First, there is nothing in the world wrong with an employer offering a job to an employed person; every employer does that at least once a week, if not daily; 

Second, almost every employee is what we call an “at will” employee, which employers are constantly reminding us means “Either the employer or the employee may end the employment relation at any time and for any legal reasons”;  

Third, even if your former employer claims the next employer knows of your Garden Leave agreement, just as noted above, it is almost always an agreement without any damages for breach;   

Fourth, if a lawsuit is begun by your former employer against your next employer, all the next employer has to do is simply end your employment relation to end any alleged “interference”; and 

Fifth, the truth is that, if anyone is “guilty” of tortious interference, by writing a letter threatening your future relation with a new employer it is more your former employer who is the one who should fear being sued, and not a future employer, who has every right to say to someone, “Would you like to work for us?”   

No one likes being threatened with a lawsuit, and no one likes being sued. It is the fear in the mind of your next employer that, if anything, can keep you out of work for the Garden Leave period, and thus must be addressed.

d. Make you forfeit past-earned monies? Yes, possibly. If you have deferred income, perhaps in the form of deferred bonuses, or unvested equity, such as unvested stock options, it is possible – though not necessarily the case – that the terms of your Garden Leave agreement or your bonus or equity “plan” provide that you will lose these monies if you (a) voluntarily resign, or (b) resign without honoring your Garden Leave agreement. 

This is a potential “cost” of leaving an employer, and should be looked into before considering a transition. It should be noted that, under some plans and agreements, you lose your deferred income and/or your unvested equity even if you are laid off, without cause. Check your plans; this may be important, or perhaps even inapplicable, to you. And, too, consider how much the loss is worth to you. 

Incidentally, there is a legal argument to be made that the employer, by establishing a forfeiture, has “set a price” on your ignoring your Garden Leave agreement, and thus cannot seek additional “damages” from you.  

e. Might they claim you were fired? Rare and overblown; One exception: Form U-5. Any time you leave a relation – be it friendship, dating, marriage or employment – you run the risk of your former “relation-mate” bad-mouthing you. In the employment context, this can take the form of your former employer giving you an undeserved bad reference. In this situation your former employer could claim that “This person was fired for bad conduct,” referring – dishonestly – to your not complying with your Garden Leave agreement.

With one major exception, experience shows that bad-mouthing by former employers is not as much a risk as most people fear it might be. One thing is for sure: you cannot stay in an unproductive or unhealthy relation based on the fear – which might not even be real – of your former “relation-mate” saying bad things about you. 

The one major exception is if you are a Registered Representative in the securities industry. In that case, when your employment terminates for any reason, your employer must, within 30 days of the termination, file a form called a Form U-5 explaining the reason(s) for your departure. It is not unheard of for a disgruntled employer to try to smear a former employee by filing a false, fraudulent and defamatory Form U-5. This possibility – however remote – is always to be taken into account and, as noted below, steps need to be taken to minimize the chances of this happening, and if it does, minimize the harm that might take place. 

WHAT YOU CAN DO: Garden Leave is certainly not something to fear, but rather something to navigate. However, as employment transitions go, it is a bit complicated, as it calls into play several different legal and negotiating concepts at the same time. 

To guide you as best we can, here are the 18 smart steps you can take to best assist yourself if you decide to ignore your Garden Leave agreement:    

1. Read your Garden Leave agreement (or Garden Leave provision in some other agreement or plan) quite carefully. Believe it or not, many agreements are written in a way that does not really obligate the parties to anything; it is just possible that you are not bound, at all. The “best defense” to any claim of “breach of agreement” is that the words, themselves, do not prohibit what you have done. 

Also, take note of how long a period it is, when it starts, and what you may, or may not do, during your leave. 

2. Understand that adherence to Garden Leave almost always means your (a) staying at home, (b) not communicating with clients or colleagues, and (c) most importantly, not assisting your next employer in any way. While I cannot speculate as to what words are in your Garden Leave agreement, most Garden Leave agreements require that you can be asked to stay at home and remain incommunicado with your clients and customers. Understand that so long as you remain an employee, you have a legal duty to remain “loyal” to – in effect, to “obey” its directives and interests – your employer, which also means “not to act against its interests.” For this reason, you cannot do anything to assist your next employer during your Garden Leave. 

Note, too, that if you write a piece of software or an article, invent a new product or make a list of prospective clients, all of those things “created” while you remain an employee technically belong to your employer. 

3. Understand, too, that most Garden Leave provisions usually give your employer the “option” to restrict you, or if it chooses, to release you, at any time. Once again, I cannot presume what the words of your Garden Leave provision say, but usually they provide that your employer can say to you, at any time, “No thanks. We don’t want to continue your being an employee of ours.” That is, usually employers have the continuing “option” to halt the Garden Leave at any time. Take that factor into consideration in all that you plan.

4. Plan your “resignation” – and most importantly, its timing – very carefully. Many people don’t see it this way, but resigning from a job is one of the most complicated navigations in the work experience. In fact, our blogsite newsletter, our free YouTube video, and our book all entitled “Resigning from Your Job – the 21 Necessary Precautions” are among our most read,  watched, and purchased items. There are a lot of things to consider, and do, and much to avoid, as well.   

For great info and insight, consider viewing our 12-minute Sklover-On-Demand Video entitled “Resigning from Your Job – the 21 Necessary Precautions.” To do so, just [click here.]

Or, if reading is preferable, here is the link to read our Newsletter of the same title. Just [click here.] 

5. Whatever you do, do not take with you any secrets or documents, or urge clients or colleagues to leave with you before you leave. As noted above, during every day that an employee is an employee, he or she must be “loyal” to the interests of his or her employer. To take secrets or documents is a grave violation of that duty, and must not be engaged in. In many states, this is considered criminal. Likewise, while you are an employee, seeking to “take” customers and colleagues with you is also a violation. Either of these two activities, if engaged in while you are an employee, before your departure, could cause grave career and legal harm.   

Resignations can be tricky – and treacherous. To help you, we offer a 100-Point Master Pre-Resignation Checklist. All you need to know and remember. To obtain your copy, just [click here.] – Delivered by Email – Instantly!

6. Consider whether your “breach” will really cause financial damages to your employer. Will your employer really lose any money if you leave now; that is, what might be the “damages” of your “breach?” If so, is there any way you can avoid doing so, or minimize the damage? If not, you can “call their bluff” if they threaten to sue you in Court for damages.  

7. Consider factual and contractual defenses. Like any other agreement, a Garden Leave agreement is a kind of contract that can be overcome by certain factual and legal defenses. Thus, is it possible you never signed the Garden Leave agreement or provision? Is it possible that your employer has failed or refused to pay you what you have earned, or otherwise, itself, breached the terms of your employment? Over many years, we have assisted clients in their navigating and negotiating a wide variety of problems and opportunities related to work. In almost every instance, we have found one or more such defenses.

8. “Involuntary Resignation.” There is a strong “gravitational pull” between “involuntary resignation” and declining to adhere to the terms of a Garden Leave agreement. While you may be leaving your job simply to get a better, more rewarding or more fulfilling position, if you are leaving because of hostility, harassment, discrimination, impropriety, illegality, or other reason that makes your decision really not “voluntary.” If that is the case, then this concept may be of great assistance in your navigating your Garden Leave.   

Consider reviewing our blogsite video, newsletters and Q&A’s on the concept we invented called “Involuntary Resignation.” This is also a strong defense against any argument that your next employer “stole” you away. Just [click here.]

9. Consider “equitable” defenses: looking back, is it possible that you have (a) observed, (b) objected to, or (c) have been asked to participate in, improper conduct of some kind? If so, no one can force you to be part of an unethical, improper or illegal course of conduct. This alone, if raised as a reason for your leaving effective immediately, might simply make any threat to take action against you to simply go away. Under a legal theory called the “Clean Hands” doctrine, if your employer is seeking an injunction against you, and it has failed to conduct its affairs in an honorable fashion, that alone may defeat its legal efforts. Indeed, noting that in your resignation, alone, might deter your employer from acting against you. 

10. If you take some time off between jobs – even just a week or two – you decrease the chance of getting your next employer involved in any way. One particular way you could decrease the odds of your employer taking any legal action against you, or your next employer, is to take some time off between positions. Because employees’ usual greatest concern about Garden Leave is losing the next job due to the next employer’s fears of a lawsuit,  if you are not then working at your next job, your former employer has no reason at all to involve it in any dispute, which leads us right into the next point.  

11. You might ask your next employer to describe your “start date” in its offer letter this way: “ . . . on October 2, 2016, or later upon your release from the obligations of any Garden Leave provision you may have with your present employer.” This offer letter language takes your next employer “off the hook” from any claims that it is coaxing you into violating your Garden Leave agreement, and also gives you the option to start quite soon if your former employer backs off, or releases you from, your Garden Leave early.  

12. Do not fear asking your next employer to defend you – or wait for you – if a dispute arises. It is quite amazing what employers will do to attract and “acquire” valuable “human capital.” Consider whether or not to request that your next employer (a) wait for you to start your new job, even if it does entail a wait of 90 days, or (b) pay your legal expense if that need arises, both on an “if need be” basis.   

13. Also, do not fear asking your next employer to make up for you any forfeited monies or equity (stock, stock options, or substitute.) In the same way, you should consider requesting of your next employer that it “make you whole” for any bonus, stock, deferred income or other compensation lost due to your not abiding by the terms of your Garden Leave restriction.   

14. Don’t be too surprised if your former employer suggests you “buy your way out” of your Garden Leave obligations. More than once I have seen employers say, “OK, you can leave early, but in exchange for our waiver of our rights to keep you here, we want you to pay back your last bonus” (or some other sum of money.) In my experience this is close to an admission that Garden Leave is essentially unenforceable, but also an attempted denial of that fact. It is as if they said, “We can’t do much to enforce this Garden Leave, but we would save face if we were to show management that we at least got something from you in return.”   

And, too, you should consider raising the notion with your next employer of their reimbursing you for the “price” needed to “buy” your way out of the dispute.  

15. As a general rule, your resignation should (a) be in writing, (b) not mention the Garden Leave, but say “effective immediately,” (c) be sent by email, and (d) not mention the identity of your next employer. While you can’t count on it, after you ignore your Garden Leave agreement, you just might not hear anything in response. If you do, and if it is threatening in some way, don’t fret too much. Consider, instead, the points raised above and decide how, if at all, you should respond. Quite often, declining to respond is the wisest course of action.   

To help you in resigning, we offer Two Model Resignation Letters: What to Say, and How to Say It.™ To obtain your copies, to adapt to your own facts and circumstances, just [click here.] – Delivered by Email – Instantly! 

16. If your employer needs to file a Form U-5, you might mention that any statement on the Form U-5 that you were terminated would be a fraud against the investing public and community. It is not unknown for an employer who feels betrayed or treated badly to retaliate by filing a false Form U-5. Unfortunately in some states you have no good recourse. In fact, the New York Courts have held that employers cannot be sued for doing so, even if what they wrote was intentionally malicious. 

To pre-empt this happening to you, you might mention in your resignation that your Form U-5 should show that you did, in fact, resign without any allegation of bad performance or misconduct, and that anything inconsistent with that would constitute a fraud – which the law defines as an intentional misstatement of fact that others will rely upon. This should decrease the chances of a fraudulent Form U-5, but of course, this is not a guarantee. 

17. Is it unethical to ignore an agreement you signed? That is a great question. I am a proponent of honoring one’s word. While there are exceptions to every rule, this is a general rule I try to follow, and recommend my clients follow. That said, (a) there are valid, legally recognized “excuses” not to abide by certain agreements, (b) there are sometimes moral and ethical reasons not to abide by certain agreements, and (c) some agreements, by their very nature, are close to “evil” to my mind. I view each of these three reasons not to abide by Garden Leave provisions to be sufficient for me to assist others in how to avoid and not abide by Garden Leave agreements. 

I view Garden Leave agreements as (i) one-sided, (ii) wasteful of human talent, (iii) based on fear, (iv) an attempt to force someone to remain “loyal” who does not, in his or her heart, feel “loyal,” (v) a kind of forced labor, and (vi) part of a larger “scheme” by which employers, out of one side of their mouths, praise “free enterprise” but, on the other side of their mouths, stifle it when it is applied to them.  

That is my view, and how I justify helping people avoid Garden Leave agreements. I respect other views, too. This may, or may not, be something for you. Each of us has to respect ourselves.   

18. It might be wise to have an experienced employment attorney available for strategy or, possibly, intervention. This is surely one of those relatively few situations in which you might be wise to have an experienced employment attorney familiar with the facts and circumstances, and ready to “jump in” if “the waters get rough.” There is just too much at stake, and too many “moving parts” in this circumstance.    

If you would like a list of five or more experienced “employee-side” employment attorneys in your city, simply [click here.] Delivered by Email – Instantly! 

These 18 Smart Steps will help you help yourself if you decide not to abide by a Garden Leave agreement. Of course, this is not and cannot be considered to be legal advice, but only helpful suggestions in navigation of workplace issues.

P.S.: Consider the wisdom of having a telephone consultation with Mr. Sklover about navigating and negotiating your own Garden Leave obligations. We offer telephone consultations 7 days a week on this important subject, ranging from 30 minutes, 60 minutes, or two hours. For more information, and to schedule a consultation, just [click here.] 

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you, and to know what to “watch out” for, regarding Garden Leave agreements. Now the rest is up to you.      

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.     

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

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One Empowered and Productive Employee at a Time ™

© 2013 Alan L. Sklover, All Rights Reserved.

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