How Garden Leave Works

Garden leave is a practice where an employee, after resigning or being dismissed, is required to stay away from work during their notice period while still receiving full pay and benefits. During this period, the individual is still officially employed but is not expected to carry out any work-related duties. This concept is commonly used to restrict the employee from immediately joining a competitor or accessing sensitive company information before their departure. Employers may use garden leave to protect intellectual property and client relationships, ensuring a smoother transition.

Whether you’re changing jobs, approaching retirement or just starting your career, a financial advisor can provide valuable advice regarding your investments or overall financial plan.

What Is Garden Leave?

Garden leave, also called gardening leave, is a period of time when an employee is paid not to work. Specifically, it happens when an employee has given notice but is still technically employed by that company, and not allowed to work for another employer. During garden leave, an employee might work remotely or not at all, and usually is not allowed to actually work on-site for a set period of time.

During garden leave, an employee is often prohibited from contacting employees, clients or vendors. They will likely also be prohibited from seeking other employment.

The term garden leave originated in the United Kingdom and is most commonly utilized in the finance industry, but it has also been recently introduced in the United States. Massachusetts passed non-compete legislation in 2018 that requires employees who sign a non-compete be compensated through garden leave or another mutually agreed-upon benefit.

So why is it called garden leave? The term is believed to have originated from the idea that an employee, while technically still employed and on notice, has time to metaphorically “tend to their garden” instead of actively working. It can feel like being neither employed nor unemployed.

Why Is Garden Leave Used?

Garden leave can be implemented for a variety of reasons. Firstly, it previously could have been associated with an employee’s non-compete agreement. These controversial agreements are a type of legal contract between an employee and his or her employer that states that the employee will not work for a competitor for a period of time after employment. However, the Federal Trade Commission (FTC) banned non-competes in 2024.

Similarly, garden leave prevents an employee who is leaving a company for perhaps a competing company from taking time-sensitive or recent trade secrets or proprietary information with them when they depart.

Secondly, garden leave can be used when the relationship between an employee and employer ends in a less-than-cordial way. In this case, an employer might be concerned that the employee on notice might engage in disruptive or other similarly damaging behavior while in the office. Hence, garden leave may be implemented.

It’s also important to note that garden leave can be put into place both if an employee resigns or if he or she was terminated and it usually applies to high-level employees.

Pros and Cons of Garden Leave

For some, garden leave may seem like a sort of purgatory – being a restricted employee of their soon-to-be-former company, yet not allowed to seek work elsewhere. But for others, it could be a welcome respite following an unstable or toxic workplace environment.

The pros of garden leave often accrue to the employer. It can prevent sensitive information from being shared with a competitor, keep an ousted employee from engaging in workplace behavior that may be detrimental to the bottom line and other employees’ well-being and can also keep an employee from immediately working for a competitor.

Since garden leave is often used on high-level employees, it can also keep such persons from engaging with other workers, important clients or vendors. This can also protect a company’s bottom line.

But there are a few major cons of garden leave. First, for employees it can be a tough process. Not being free from a previous employer but not yet free to pursue other employment can be a tough spot for many. And since garden leave can often follow a fraught period within the workplace, it can also create the potential for blowups, legal battles or other issues.

Garden leave also poses one rather large drawback for an employer – the cost. Since garden leave employees are entitled to at least a percentage of their pay, as well as other benefits, when placing an employee on garden leave, an employer is essentially paying them to do nothing, or very little. While this can be cheaper than terminating an employee and potentially paying a hefty severance package, it’s still a sunk cost.

Bottom Line

Garden leave is a period between an employee’s departure from a company and when he or she is no longer employed by that company. During the time an employee is on leave, he or she may be required to work remotely and may also be prohibited from contacting other employees, clients or vendors. Garden leave can be implemented to protect a company’s interests by keeping sensitive information from rivals and may mitigate damage when an employee, particularly a high-level one, leaves a company on less-than-cordial terms. Garden leave will cost a company since an employee is entitled to at least a percentage of his or her pay and benefits during garden leave.

Tips for Career and Income Planning

Consider talking to a financial advisor about how to handle your finances when you are between jobs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
After landing a new job, be sure to find out if your employer offers retirement plan matching contributions. If they do offer an employer match, make sure you contribute enough to take full advantage of it. Employer matches are essentially “free money” that can accelerate your savings growth with no additional effort on your part.