Down the Garden Path: A Look at the “Garden Leave” Provisions of Proposed Non-Competition Legislation
In a state with an innovation economy like Massachusetts, the balance between protecting both a company’s pioneering intellectual property and the ability of employees to move freely in the marketplace is often in tension. It is no surprise, then, that in recent years, the Commonwealth’s legislature has trained its fire on non-competition agreements. Legislators have focused on issues such as the propriety of non-competition agreements for lower-level employees, and whether non-competition restrictions are justified by legitimate business interests, such as protecting trade secrets, or function merely a tool to suppress healthy competition. As we begin 2018, the perennial question looms for those who practice at the intersection of intellectual property and employment law: will this be the year that Massachusetts finally reforms or eliminates non-competition agreements?
The answer may lie in a novel proposal put forth in three bills currently making their way through the Massachusetts legislature, all of which contain garden leave clauses. The concept of garden leave comes to us from England, where such provisions are more common. Garden leave means that an employer is required to pay a former employee his/her salary during the time of the non-competition agreement. During a garden leave, the employee is not required to report to work, but can spend his/her time “tending to their garden.” While some employment contracts contain garden leave provisions, especially for high-level employees in finance and other industries that also do business in Europe, that concept has not often been applied to at-will employees in the United States. As of this publication, Oregon is the only state that has some form of a garden leave requirement. These three proposed bills attempt to add Massachusetts to that very short list.
The garden leave concept has some appealing benefits. Courts may be more likely to enforce non-competition agreements when it is clear that employees are not going to be financially harmed during the period when they cannot compete with their former employer. Employers also may be less likely to use non-competition agreements in a punitive or overly broad way if doing so is going to hit them in the wallet. Instead, the hope is that employers will reserve the use of non-competition agreements for employees who have access to confidential company information and present a real risk of harming the company if they immediately go to work for a competitor.
However, the garden leave concept does not come without costs. Employers will be required to carry the expense of an employee who is providing no or limited services to the company, which may be burdensome, particularly for small companies and start-ups. There are also logistical concerns regarding an employee who takes the garden leave, but then is found to have improperly competed anyway – would the leave money be clawed back, and how? What notification procedures should be in place?
To many observers’ surprise, the Associated Industries of Massachusetts (“AIM”), the major pro-business lobbying group in Massachusetts, representing more than 4,000 employers, has supported the garden leave concept. Historically, AIM has been hostile to any attempts to legislate away non-competition agreements, or to significantly burden employers’ ability to use them. All the more surprising, then, when AIM came out publicly in support of House Bill 2371.
AIM’s unexpected support of a bill that includes a garden leave requirement—when there are other bills under consideration that do not require garden leave—seems to be the result of a recognition that a compromise is necessary if employers want to maintain other traditional non-competition protections, including a one-year duration, the ability for a court to “blue pencil” overly broad non-competition provisions rather than throwing them out altogether, and the ability to offer some compensation other than garden leave, if the employee agrees. In addition, HB No. 2371, unlike the other “garden leave” bills on the table, only requires that employers pay 50% of the restricted employee’s salary, rather than 100%, as in the other two bills.
The legislature held a hearing on all of the non-competition bills on October 31, 2017, at which various parties, including a representative of AIM, spoke for and against the bills. Since that hearing, there has been no public action on the bills. But in Massachusetts’ continuing effort to adequately protect the intellectual property of our most innovative companies and still protect the workplace mobility and livelihoods of our workforce, garden leave may provide the solution.
 The three proposed non-competition bills that contain garden leave proposals are House Bill 2371, Senate Bill 840, and Senate Bill 1017.
 The Oregon statute “[p]rovides the employee, for the time the employee is restricted from working, the greater of compensation equal to at least 50 percent of the employee’s annual gross base salary and commissions at the time of the employee’s termination or 50 percent of the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee’s termination.” ORS 653.295.
 See, for instance, House Bill 2366 and Senate Bill 988, both of which reform non-competition agreements but do not include garden leaves.