Letting an Employee Go? Here’s a New Way to Do It

Young man terminated Office life

How might Hispanic business owners benefit from Garden Leave Clauses in their employment contracts?

In many states, employers are given leave to terminate an employee at will–for any reason, or no reason, as long as there’s no discrimination. But although they can fire an employee on the spot, it’s often not what a Hispanic business would like to do. Maybe, the employee has occupied a position that is sensitive to one degree or another. Maybe, the employee has cultivated important relationships with customers, suppliers, and/or vendors, or is performing sophisticated tasks for the employer, like software development or financial management. Maybe, the employee has experience that is difficult to find in the marketplace. To lose a difficult-to-replace employee can be disruptive and, potentially, can even affect the employer’s bottom line.

It’s not a situation anyone wants to be in.

At the same time, Hispanic businesses, generally, are not interested in having a recently terminated (and potentially disgruntled) employee hanging around the workplace, exposed to the employer’s confidential information, like client lists, business and marketing plans, and trade secrets. Such employees may also tend to create dissension in the workplace by possibly bad-mouthing the employer or other employees or executives, or even disrupting customer relationships. It’s a potentially difficult situation for everyone.

So, what is an employer to do?

Well, one answer, inspired by an approach that has evolved in the United Kingdom, is to put a terminated employee on “garden leave.” As the term suggests, employees are put on leave from their employment to tend their gardens, rather than to continue actively to work for the employer. The idea behind garden leave is to secure an employee’s services during a transition without having that employee necessarily onsite. 

It’s important to note that because the idea of garden leave is not native to U.S. common law, an employer who wants to place an employee on garden leave must have a garden leave provision included in the employee’s employment contract or contained in a written policy.

An example of a garden leave clause is as follows:

. . .[E]ither party may terminate this employment upon 60 days advance written notice to the other party. In the event the employment is terminated pursuant to this section, the Employer, at its option, may place the employee on garden leave under such terms and conditions as the Employer shall determine. 

Normally, employees placed on garden leave continue to be paid their wages and enjoy their benefits for the period between the time they receive the advanced notice of termination and the actual termination date. During that time, they are home based unless the company needs their assistance with the transition, in which case the employee is expected to cooperate.

Garden leave clauses have been enforced in states like New York, but the trend is not universal. In Massachusetts and in California, for example, garden leave clauses have been found to constitute unreasonable restraints on an employee’s right to earn a living. 

More ways to employ Garden Leave

Some have recommended making garden leave optional, rather than mandatory, by giving the employee the option to receive “Transition Compensation.” This could include the employer continuing to pay the employee’s wages and benefits, or affording the employee cash bonuses, or even stock options that would vest at the conclusion of the transition period. But even so, the effectiveness of such measures has not been decisively tested in the courts, so employers interested in implementing garden leave policies, depending on the state, continue to confront uncertain terrain. 

The Take-Away: While “garden leave” is an emerging approach to transitioning out terminated employees in a way that may be less disruptive to employers, the concept is not universally recognized among the states. Different states may have different takes on whether a mandatory garden leave provision is enforceable. For this reason, readers are encouraged to confer with their attorneys on whether or not to include such clauses in their employment contracts and manuals and how to draft them in a way to maximize their effectiveness. 

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