Garden Leave Explained: Benefits and Drawbacks for Employers and Employees

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Garden leave (also called gardening leave) is a period during which a departing employee stays on the payroll, keeps receiving salary and benefits, and remains legally employed, but is told to stay away from work for some or all of the notice period. The employer gets two things: the employee is kept away from clients, colleagues and confidential information, and the employee cannot yet start work for anyone else, including a competitor. The name refers to the idea that someone with nothing to do at work might spend the time in the garden.

What garden leave means

An employee normally works through the notice period. Garden leave removes the work and leaves the employment in place. Three features define it:

1. The employment relationship continues. The employee has not been fired early or bought out. Contractual duties such as confidentiality and loyalty remain in force.
2. Pay and benefits continue. Salary and benefits run until the leave period ends. Bonuses and other accruals depend on what the contract says.
3. Duties and access stop. The employee is relieved of most or all work, and the employer controls what the employee can access and whom they can contact.

Because the person is still an employee, starting a job elsewhere during garden leave would normally breach the existing contract. That is what separates garden leave from simply being let go: the employer is paying, in effect, to keep the employee off the market for a set period.

The term carries some baggage. It can be read as a polite word for suspension, or as a hint that the person is fit only for tending their garden. Some employees welcome the paid time off. Others resent being sidelined, especially when the departure was not their choice.

How garden leave works

When it starts

Garden leave is triggered by the end of employment, whatever the reason. It can follow:

• A resignation. The employee gives notice, and the employer decides it does not want them working during that notice.
• A termination. The employer gives notice of dismissal and keeps the employee at home for the notice period instead of having them work it.

An employer can usually place someone on garden leave immediately after notice is given, provided the contract allows it. Without a contractual right, the move is open to challenge (see the section on clauses below).

How long it lasts

The length is set by the notice period in the contract or by the separation agreement. Periods of 30 to 90 days are frequently cited, and senior roles in finance can carry longer notice. A long notice period and a garden leave clause together determine how long a departing employee is kept out of the industry while still being paid.

What the employee keeps

• Salary for the full leave period.
• Benefits such as health coverage and pension or retirement contributions, which continue as part of the employment.
• Bonuses and commissions, depending on the contract. Some contracts keep performance pay running; others stop it or exclude employees on notice from bonus eligibility. This is one of the most frequent sources of dispute.

What the employee gives up

During garden leave an employee is typically:

• Barred from the employer’s computer systems, email and data.
• Barred from the office or other company premises.
• Prohibited from contacting clients, suppliers or fellow employees, or limited to contact with named people.
• Required to return company property such as laptops, phones, access cards or vehicles.
• Prohibited from working for anyone else, including on a self-employed basis.

Staying available

Garden leave is not a vacation in the legal sense. The employee must remain reachable and respond to reasonable requests: answering questions about open matters, helping hand over responsibilities, or returning to work if asked. For that reason, travel generally needs the employer’s approval. An employer may also require the employee to use accrued vacation during the garden leave period, which reduces any payout for unused holiday at the end.

The garden leave clause

An employer is not required to put a garden leave clause in every contract, and many contracts for junior roles have none. Clauses are more common for senior managers, executives and client-facing staff in sectors where relationships and information are valuable, such as banking, trading and asset management.

A well-drafted clause typically sets out:

• The employer’s right to require the employee to stop working during notice.
• What happens to salary, benefits, bonus and commission during the period.
• Restrictions on access to systems, premises and people.
• The duty to stay available and cooperate.
• Whether accrued vacation must be taken during the leave.
• How the garden leave interacts with any post-employment restrictions, such as a non-compete or non-solicitation agreement.

The clause matters because, without one, imposing garden leave can amount to a breach of contract. In the U.K., courts have recognized that some employees, particularly those whose skills deteriorate without practice or whose pay depends on actually working, have a legitimate interest in being allowed to work. An express clause removes much of that argument. Employees paid largely through bonuses or commissions are the most likely to contest garden leave, because sitting at home can directly reduce what they earn. Those disputes can end in litigation.

Why employers use garden leave

The reasons all come back to protecting the business during the gap between notice and departure.

• Client relationships. A departing salesperson, adviser or portfolio manager who keeps working might use the notice period to persuade clients to follow them. Keeping them away from clients gives the firm time to reassign the relationship.
• Confidential information. Someone who is still at their desk keeps seeing current pricing, deal pipelines, strategy and client data. By the end of garden leave, that knowledge is weeks or months out of date and less useful to a competitor.
• Workplace disruption. An employee who has resigned on bad terms, or been dismissed, may become uncooperative or unsettle colleagues. Removing them from the office limits that risk.
• Taking the employee off the market. While on garden leave, the employee cannot join a rival. This is why some employers prefer garden leave over ending employment immediately with a cash payment in lieu of notice, which would free the employee to start elsewhere at once.
• Orderly handover. Because the employee must remain available, the firm can still call on them for information during the transition.

Deciding whether garden leave fits

Garden leave is an expensive tool, so it suits some departures and not others. Before imposing it, an employer would typically ask:

• Does this person’s departure expose the business to real risk, through client contacts, trade secrets or market-sensitive information?
• What will the transition look like, and does the employee need to be present for a handover?
• Does the contract allow garden leave, and does any state law or professional rule restrict it?
• How long should the leave last, and can that length be justified by the risk it addresses?

The answers have to be weighed against the cost of paying someone who is not working, the legal exposure if the leave is challenged, and how the decision looks to remaining and future staff. A junior employee with no client relationships rarely justifies the expense. A senior trader with a book of clients may.

Worked example: what garden leave costs

The figures below are hypothetical and only illustrate the arithmetic.

A firm employs a portfolio manager on a base salary of $240,000 a year, with employer-paid benefits worth an assumed $36,000 a year. The contract has a 90-day notice period and a garden leave clause. The manager resigns to join a competitor.

Assumptions: salary and benefits accrue evenly across a 365-day year; no bonus is payable during notice under this contract.

• Daily salary cost: $240,000 / 365 = about $657.53
• Daily benefits cost: $36,000 / 365 = about $98.63
• Total daily cost: about $756.16
• Cost of 90 days of garden leave: 90 × $756.16 = about $68,055

That is roughly $68,000 paid for no productive work. The employer’s question is whether the protection is worth more than that: keeping a client book from walking out, or keeping current strategy from reaching a rival for three months. If the contract also kept a bonus running, the cost would rise and the comparison would change.

Now change one assumption. If the contract required the manager to use 10 accrued vacation days during the leave, the total cost stays the same, but the employer avoids a separate payout for those days at the end, which narrows the true incremental cost of the garden leave.

A real example from an SEC filing

Public companies sometimes file executive separation agreements with the Securities and Exchange Commission. One such filing, an exhibit to a company’s report, set out the departure of its chief operating officer in August 2019. The agreement included:

• A garden leave period running from Aug. 19, 2019, to Aug. 31, 2019, the official resignation date.
• No access to the company’s facilities or electronic systems during that period.
• A requirement to provide reasonable consultation and assistance to the chief executive officer as needed.
• A rule that any business done on the company’s behalf during the period would be with company officers only.

The example shows the standard pattern at a small scale: a short period, removed access, continued availability, and controlled contact.

Benefits and drawbacks for employers

Benefits

• Keeps the employee available for questions before they leave.
• Reduces the chance of the employee taking clients with them.
• Supports a structured handover of responsibilities.
• Cuts off access to sensitive systems and information.
• Delays the employee’s start with a competitor.

Drawbacks

• Cost, which grows with seniority. Keeping a C-suite executive at home for months is a large expense.
• Little or no productive work in return for the salary.
• Legal complexity, including state laws that limit restrictive covenants and contract terms that may not support the leave.
• Reputation: frequent or heavy-handed use can make the firm less attractive to prospective hires.
• Ongoing risk that a disgruntled employee still under contract behaves badly anyway.

Benefits and drawbacks for employees

Benefits

• Continued paychecks and benefits for a defined period.
• Few or no working hours.
• Freedom, in many cases, to look for and interview for a new job, even though starting one is restricted.
• Possible continued eligibility for bonuses and commissions, if the contract provides for it.

Drawbacks

• Restrictions on starting a new role, working for a competitor or working independently.
• Possible loss of performance-based pay, which can be significant for commission or bonus earners.
• Stalled career momentum during long periods, such as 90 days or more, when skills, market knowledge and client contact fade.
• Loss of contact with colleagues the employee has worked alongside for years.
• Little sense of contribution from being paid but not allowed to work.
• A possible stigma, especially when the employee did not choose to leave.

Whether garden leave is a perk or a penalty depends largely on the employee’s situation. Someone with a new job lined up that can wait gets paid time off. Someone whose new employer wants them immediately, or whose income depends on commissions, may find it costly.

Garden leave in the U.S.

Garden leave is most associated with the U.K., Australia and New Zealand, but it has a growing legal footprint in the United States, mostly through the law on non-compete agreements.

Massachusetts

The Massachusetts Noncompetition Agreement Act, enacted in 2018, was the first U.S. statute to define a garden leave clause. Under the law, a non-compete must be supported either by a garden leave clause or by other consideration the parties agree to. A qualifying garden leave clause pays the employee during the restricted period at least 50% of their highest annualized base salary from the two years before termination.

As a hypothetical illustration: an employee whose highest base salary in the prior two years was $180,000 would need to be paid at a rate of at least $90,000 a year during the restricted period for the clause to satisfy that test.

This is a different structure from the classic notice-period version. In Massachusetts, the payment runs during the post-employment non-compete period, which turns garden leave into a way of compensating someone for staying out of the market after they have left.

Illinois

The Illinois Freedom to Work Act, amended in 2021, does not use the phrase “garden leave.” It restricts when employers can bind employees to non-compete and non-solicitation agreements, including income thresholds below which those agreements are void. Because garden leave is often paired with such covenants, the law shapes what restrictions an Illinois employer can attach to a departure.

The FTC non-compete rule

In April 2024, the Federal Trade Commission announced a rule banning most non-compete agreements nationwide. A federal court in Texas set the rule aside in August 2024, before its effective date, so it did not take effect. Non-compete enforceability therefore remains largely a matter of state law, which keeps garden leave relevant as an alternative or a supplement.

Professional rules

Some professions limit these arrangements on their own terms. New York’s Rules of Professional Conduct for lawyers prohibit agreements that restrict a lawyer’s right to practice after leaving a firm, which rules out using garden leave to keep a departing lawyer from practicing for a set time.

Financial services

Garden leave is used in New York’s financial industry, where long notice periods for traders, portfolio managers and investment bankers keep them away from markets and clients before they join a rival. Lengths vary by firm and by contract.

Garden leave vs. related terms

Non-compete agreement. A non-compete restricts what someone does after employment ends. Garden leave, in its usual form, keeps the person employed and paid while restricting them. Many contracts use both: garden leave covers the notice period, and a non-compete covers a period after it. Massachusetts blurs the line by calling post-employment payment for a non-compete a garden leave clause.

Pay in lieu of notice. Here the employer ends employment immediately and pays the notice period as a lump sum. The employee is then free to start a new job at once. Garden leave pays over time and keeps the employee bound until the end date.

Severance. Severance is a separation payment, often tied to length of service or a release of claims. It is paid after or at termination and does not usually keep the person employed. A departure can involve both garden leave and severance.

Suspension. A suspension, often during a disciplinary investigation, removes someone from work while employment continues with no departure date set. Garden leave is tied to a departure and a notice period. The two look similar from the outside, which is part of why garden leave is sometimes read as a euphemism.

Sabbatical. A sabbatical is an agreed break with the expectation that the employee returns. Garden leave precedes an exit.

Non-solicitation agreement. This bars a former employee from approaching clients or staff after leaving. Garden leave achieves a similar effect during the notice period by cutting off contact while the person is still employed.

Starting a new job during garden leave

Generally, no. The employee is still employed and bound by the existing contract, and courts have found a breach of contract where an employee started a new job during garden leave. Looking for work and interviewing are often allowed. Accepting an offer with a start date after the leave ends is the usual approach. Some employers agree to shorten garden leave and release the employee early, but that is a negotiation, not a right.

The same logic applies to working in another country. Moving abroad does not end the existing contract, so working for another employer elsewhere during garden leave carries the same breach risk, and travel itself usually needs approval because of the availability requirement.

FAQs

The Bottom Line

Garden leave matters most to senior and client-facing staff in finance and to the firms that employ them. Employers should weigh the cost of paying someone who is not working against the client and information risk, and rely on a clear contract clause. Employees should check how bonuses, commissions and vacation are treated, and plan any new job to start after the leave ends.