A “garden leave” clause is a common provision in non-compete agreements in Massachusetts. Many employers and employees think that these clauses are required, thanks to a new Massachusetts state law. However, there are numerous exceptions to the requirement that can mean non-compete agreements without a garden leave clause is still enforceable against the worker.
Unfortunately, the law is new and unique enough that there is still a lot of uncertainty about what is required.
A non-compete agreement is a binding employment contract in which a worker agrees not to compete against their employer. They restrict a worker's conduct during the term of employment, and can last more than a year in some cases. Employers often require workers to sign one as a condition of employment, though they may also use one as a part of a separation agreement.
Non-compete agreements are controversial, though: By prohibiting someone from competing against their former employer, these agreements can stifle competition and make it difficult for workers to get a new job in their field of expertise. On the other hand, businesses can suffer if their workers learned all there is to know about a company, and then used that information against the business.
Garden Leave Clauses Strike a Compromise
One way to walk the fine line between workers and their employers is to force businesses to pay their employees during the restricted period that starts when the worker leaves their job and ends when their non-compete agreement expires.
The provision in a non-compete agreement that lays out these payments is called a garden leave clause. The name is a euphemism: The worker is paid to keep them from working for the employer's competitors, leaving them free to spend time on their hobbies, like gardening.
Garden leave clauses are common in the United Kingdom and Australia. In 2018, though, Massachusetts became the first state in the U.S. to pass a law requiring them in certain circumstances.
Massachusetts' Law Requiring Garden Leave in Non-Compete Agreements
In 2018, the legislature passed the Massachusetts Noncompetition Agreement Act. This law caps the restricted period for non-compete agreements to 12 months and requires them to have either:
- A garden leave clause, or
- Other mutually-agreed upon consideration that benefits the worker.
While the Act only applies to non-compete agreements that were entered into on or after October 1, 2018, it covers non-competes that were signed by both employees as well as independent contractors.
Garden Leave Clause
In order to be considered a garden leave clause, the non-compete agreement has to:
- Pay the worker, over the term of the restricted period, an amount that is at least half of the worker's highest salary from the last two years, and
- Forbid the employer from discontinuing these payments until the restricted period is over, unless the worker breaches a fiduciary duty to the employer or the non-compete agreement, itself.
If the worker ends up competing with their employer during the restricted period, thereby breaking the terms of the non-compete agreement, garden leave payments stop.
If the restricted period extends beyond the 12-month maximum because the worker breached a fiduciary duty or stole property from their employer, the garden leave payments do not have to increase.
“Other Mutually-Agreed Upon Consideration”
However, non-compete agreements do not necessarily need a garden leave clause in order to satisfy the Act and be enforceable. If the worker and the employer reach a different agreement that provides benefits to the worker during the restricted period, a non-compete contract that includes that agreement can be binding even without a traditional garden leave clause.
What amounts to “consideration” or a benefit to the worker in the non-compete, though, is not laid out in the Act.
So far, though, courts have taken an approach that is extremely business-friendly. In one case, the federal district court in Massachusetts decided that there was adequate consideration to support a non-compete agreement in the worker's original salary, the access to confidential information they had while working, the specialized training they received, and “company goodwill.”
This approach, however, almost completely undermines the Act's garden leave requirement. Odds are that subsequent court decisions will walk back this rule.
Massachusetts Contract Litigation Lawyers at the Katz Law Group
David Katz is a business and contract litigation lawyer who serves Worcester, Marlborough, Framingham, and the rest of Massachusetts. If you are a worker bound by a non-compete agreement or a business that wants to protect itself from former employees, you can contact him online or call the Katz Law Group at (508) 480-8202.