Garden-leave clauses, which essentially pay an employee for a post-termination non-compete, originated in the United Kingdom and are becoming increasingly popular in the United States. The reason is obvious: employers face uncertainty when seeking injunctive relief to enforce a non-compete claim against an ex-employee. Though relatively few cases have addressed garden-leave provisions, they have been met with favorable opinions.
In Bannister v. Bemis Co., Inc., a variant of a garden-leave clause was at issue. Roger Bannister served as director of technical and product development for Bemis. In 2000, he signed a non-compete agreement which contained an 18-month post-employment restriction against working for a competing entity. However, Bannister's contract provided he could receive his continued base-salary from Bemis if he was "unable to obtain employment consistent with his abilities and education solely because of the [non-compete clause."
Four years later, Bannister requested a release from his non-compete clause so he could join Mondi, a Bemis competitor. Apparently, Bannister was not the only employee seeking to leave Bemis for Mondi; around the same time, Bemis sued Mondi and ex-Bemis employees who accepted positions with Mondi. That suit (to which Bannister was not a party) settled with a covenant providing Mondi would not hire for 18 months any Bemis employees who were subject to non-compete agreements.
After refusing severance, Bannister was terminated a few months after the Mondi-Bemis suit was settled.
Bannister then sought his garden-leave pay from Bemis, claiming he could not find a suitable position because of his non-compete. He provided monthly statements to Bemis regarding his efforts to find work. Bemis resisted, arguing Bannister could not work for Mondi anyway because of the settlement agreement in the lawsuit. Bemis offered to release Bannister from his non-compete for all other companies except Mondi.
The Eighth Circuit had little trouble affirming a damages judgment in favor of Bannister for the nine months in which he could not find comparable work. The court rejected Bemis' arguments that the Mondi settlement had any impact on Bannister's rights: "To the extent that the Mondi settlement is relevant, the only reason it prevented Mondi from hiring Bannister is because of Bannister's [non-compete] with Bemis. Thus, even considering the settlement agreement, the [non-compete] was still the sole cause of Bannister's ability to be hired by Mondi."
Garden-leave provisions are likely to be considered by employers as more and more employees are severed without cause. Courts may have more sympathy for workers subject to restrictions who are involuntarily terminated, reasoning the application of a covenant imposes an undue hardship on the employee. Further, a garden-leave provision can yield more certainty than a non-compete clause, because the latter always carries with it some risk for the employer that its covenant will be declared invalid.
If such provisions are drafted and because garden-leave is still a new concept in American courts, counsel should still consider drafting restraints narrowly and pay careful attention to those jurisdictions like Virginia, Wisconsin and Georgia where a strict blue-pencil rule can threaten an entire agreement.
Court: United States District Court for the Eighth Circuit
Opinion Date: 2/25/09
Cite: Bannister v. Bemis Co., Inc., 2009 U.S. App. LEXIS 3648 (8th Cir. Feb. 25, 2009)