Garden Leave Clauses: Getting Paid to Not Work for Your Competitor

What Garden Leave Is

Garden leave — sometimes called "gardening leave" — is a contractual arrangement in which an employee who has given notice of resignation (or who has been given notice of termination) is required to remain employed for the duration of the notice period but is not required to attend the workplace or perform their duties. The employee remains on the payroll, continues to receive their salary and benefits, and remains bound by their employment obligations — including the duty of loyalty, confidentiality, and the obligation not to work for a competitor.

The term originates from British employment practice. The metaphor is that the employee, having nothing to do at work, can spend their time tending the garden. The concept has been well-established in the United Kingdom for decades, where it is commonly used in financial services, professional services, and senior executive employment.

In Canada, garden leave clauses are becoming increasingly common, particularly in industries where departing employees pose a competitive risk: financial services, technology, management consulting, and professional services. The clause is typically found in the employment agreement, though it can also be included in a shareholder agreement or partnership agreement.

How Garden Leave Works in Practice

A typical garden leave scenario unfolds as follows:

An employee in a senior sales role at a financial services firm decides to leave for a competitor. The employee gives the contractually required notice — say, four weeks. The employer invokes the garden leave clause in the employment agreement, which provides that the employer may, at its discretion, require the employee to remain away from the workplace during the notice period while continuing to receive full pay and benefits.

The employer extends the notice period to the maximum permitted under the garden leave clause — say, three months. During those three months, the employee continues to receive their salary, bonus accruals, benefits, and pension contributions. They are required to remain available to the employer (for transition purposes, answering questions, attending meetings if requested), but they do not attend the office, do not have access to company systems, and do not interact with clients.

At the end of the garden leave period, the employment relationship terminates. The employee is free to commence their new role. Any post-employment restrictive covenants in the employment agreement — non-solicitation clauses, for example — begin to run from the end of the garden leave period.

The practical effect is a cooling-off period. During the garden leave, the employee's knowledge of the employer's current clients, pricing, strategy, and confidential information becomes stale. Client relationships begin to attach to the employee's replacement rather than the departing employee. The competitive risk diminishes with the passage of time.

The Legal Framework

Garden leave clauses in Canada operate within a legal framework that combines contract law, fiduciary duty principles, and the evolving common law of restrictive covenants.

Contract Law: The Clause Must Be Agreed

Garden leave is a contractual right. The employer cannot unilaterally impose garden leave on an employee whose employment agreement does not contain a garden leave clause. Without a contractual basis, requiring an employee to stay home while continuing to pay them may be permissible — the employer has no obligation to provide work, only to pay — but the employer cannot extend the notice period beyond what the contract requires or prevent the employee from working elsewhere after the contractual notice period expires.

A well-drafted garden leave clause typically includes the employer's right to require the employee to remain away from the workplace during the notice period, the employer's right to extend the notice period to a specified maximum (the garden leave period), the employee's obligation to remain available to the employer during garden leave, the employee's obligation not to commence employment with a new employer during the garden leave period, the continuation of salary, benefits, and other compensation during the garden leave period, and the employer's right to restrict the employee's access to company systems, premises, and clients during the garden leave period.

The Duty of Loyalty

During the garden leave period, the employee remains employed. As a result, the employee remains bound by the common law duty of loyalty — the implied obligation of every employee to act in their employer's interests and not to compete with the employer while the employment relationship subsists.

The duty of loyalty was described by the Supreme Court of Canada in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, in which the Court held that employees owe a duty of good faith and fidelity to their employer during the term of employment. This duty prohibits the employee from competing with the employer, soliciting the employer's clients, or diverting business opportunities while employed.

Garden leave leverages the duty of loyalty by extending the employment relationship. As long as the employee remains employed and paid, the duty of loyalty applies. The employee cannot work for a competitor — not because of a restrictive covenant that operates after employment, but because of the duty of loyalty that applies during employment.

This structural feature is what makes garden leave more enforceable than a traditional non-compete. A non-compete clause restricts the employee after the employment relationship has ended, when the duty of loyalty no longer applies. Courts subject non-competes to rigorous scrutiny because they restrain the employee's ability to earn a living without any corresponding obligation to pay them. Garden leave, by contrast, restricts the employee during an extended employment period, while the employer continues to pay. The restriction is proportionate because the employee is compensated for it.

Enforceability

Canadian courts have not yet developed a comprehensive body of case law on garden leave clauses, but the principles that govern their enforceability can be derived from the existing law of restrictive covenants and the duty of loyalty.

Reasonableness. Like all restrictive covenants, a garden leave clause must be reasonable to be enforceable. The factors relevant to reasonableness include the duration of the garden leave period, the scope of the restrictions on the employee during garden leave, and whether the employee receives full compensation and benefits during the garden leave period. A garden leave period of three to six months is generally considered reasonable for senior employees with access to confidential information and significant client relationships. A garden leave period of 12 months or more would face heightened scrutiny.

Consideration. If the garden leave clause is included in the initial employment agreement, it is supported by the consideration of employment itself. If the garden leave clause is introduced during employment — through an amendment to the employment agreement — it must be supported by fresh consideration to be enforceable. The Supreme Court of Canada confirmed in Hobbs v. TDI International Pty. Ltd., 2004 BCCA 605 (among other authorities) that continued employment alone is generally insufficient consideration for new restrictive covenants.

Clarity. The clause must be clearly drafted. The employer's rights and the employee's obligations during the garden leave period must be specified. Ambiguity in a garden leave clause — as with any restrictive covenant — will be resolved in favour of the employee.

Garden Leave vs. Non-Compete Clauses

The relationship between garden leave and non-compete clauses is important, particularly since Ontario's Working for Workers Act, 2021 (Bill 27) banned non-compete clauses in employment agreements for non-executive employees.

The Non-Compete Ban

Since October 25, 2021, Ontario employers cannot include non-compete clauses in employment agreements with non-executive employees. Section 67.2 of the ESA voids any agreement that prohibits an employee from engaging in competitive activity after employment ends.

The ban does not apply to garden leave clauses. This is because garden leave operates during the employment relationship, not after it. The employee is restricted from competing while they are still employed and being paid — not after the employment relationship ends. The restriction is a function of the ongoing duty of loyalty, not a post-employment restraint of trade.

This distinction makes garden leave an increasingly important tool for Ontario employers who want to protect their competitive interests. The non-compete ban eliminated one mechanism for preventing departing employees from immediately joining competitors. Garden leave provides an alternative mechanism that achieves a similar practical result — a cooling-off period — without running afoul of the statutory prohibition.

Practical Differences

Feature	Non-Compete	Garden Leave
When it applies	After employment ends	During extended notice period
Employee paid	No	Yes (full salary and benefits)
Legal basis	Restrictive covenant	Employment contract + duty of loyalty
Ontario legality	Banned (non-executives)	Permitted
Enforceability	Frequently struck down	Generally upheld (if reasonable)
Duration	Typically 6-24 months	Typically 1-6 months

The table illustrates why garden leave is the more elegant solution. It protects the employer's interests while compensating the employee. It operates within the employment relationship rather than after it. And it does not face the legal hostility that has made non-compete clauses so frequently unenforceable.

Negotiating Garden Leave

If your employer presents an employment agreement that includes a garden leave clause, there are several key terms to evaluate:

Duration. How long can the garden leave period last? A clause that permits the employer to extend the notice period by three months is significantly different from one that permits a six-month extension. The duration should be proportionate to your role and the legitimate interests being protected.

Compensation. What do you receive during the garden leave period? Ideally, the clause should specify that you receive your full salary, benefits, bonus accruals, pension contributions, and any other compensation you would normally receive. Watch for clauses that reduce compensation during garden leave — for example, by excluding bonus accruals or reducing the salary to a base-only figure.

Trigger. Who can invoke the garden leave clause? Most clauses give the employer the discretion to require garden leave, but some are triggered automatically upon the employee giving notice. The distinction matters because it determines whether you have any input into whether garden leave is imposed.

Availability. What are your obligations during the garden leave period? Some clauses require you to remain available for consultation, transition assistance, or meetings. Others require you to be available "at all times" during normal business hours. The scope of your availability obligation should be reasonable.

Post-garden-leave restrictions. Does the employment agreement contain additional restrictive covenants — non-solicitation clauses, for example — that take effect after the garden leave period ends? If so, the combined duration of the garden leave period and the post-employment restrictions should be assessed together. A three-month garden leave followed by a 12-month non-solicitation creates 15 months of restriction.

Equity and incentive plans. If you participate in stock option plans, restricted stock unit plans, or other long-term incentive arrangements, how does garden leave affect your vesting and exercise rights? Some plans treat garden leave as continued employment for vesting purposes. Others do not. The financial impact can be substantial.

The Employee Perspective

For employees, garden leave has both advantages and disadvantages.

Advantages. You continue to receive full compensation during the restriction period. You have time to rest, reflect, and prepare for your next role without financial pressure. You remain employed, which avoids any gap on your resume and maintains your benefits coverage. And the garden leave period counts as service for employment standards purposes (termination notice, severance pay).

Disadvantages. You cannot start your new job immediately. If you have been offered a position with a competitor and are eager to start, the garden leave period delays your transition. Your new employer may not be willing to wait three to six months. You may lose a time-sensitive opportunity. You are isolated from your professional network — you cannot attend industry events, visit clients, or maintain the relationships that define your career. The isolation can be professionally and personally difficult, particularly for longer garden leave periods.

Strategic considerations. If you are negotiating a departure and the employer invokes garden leave, you may be able to negotiate a shorter garden leave period in exchange for other concessions — for example, a mutual release, a reference letter, or accelerated vesting of equity. The employer's interest is in the cooling-off period; the length of that period is negotiable.

Garden Leave and Constructive Dismissal

An important question is whether an employer's decision to place an employee on garden leave — removing them from their duties, restricting their access to the workplace, and isolating them from clients and colleagues — could constitute constructive dismissal.

The answer depends on the contractual context. If the employment agreement contains a garden leave clause that authorizes the employer to place the employee on leave, the exercise of that right does not constitute constructive dismissal — the employer is acting within the scope of the agreed terms. The employee consented to the possibility of garden leave when they signed the contract.

If there is no garden leave clause, the analysis is different. An employer that unilaterally removes an employee from their duties — even while continuing to pay them — may be fundamentally changing the terms of employment. In Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10, the Supreme Court of Canada confirmed that a suspension with pay, without a contractual right to suspend, can constitute constructive dismissal. The same principle could apply to a unilateral placement on garden leave.

The lesson is that garden leave must be contractually authorized. An employer that wants the flexibility to impose garden leave should include a clear, well-drafted clause in the employment agreement. An employee who is placed on garden leave without such a clause should seek legal advice about whether the placement constitutes constructive dismissal.

The Growing Importance of Garden Leave

Ontario's non-compete ban has accelerated the adoption of garden leave clauses. Employers that previously relied on non-compete clauses to protect their competitive interests are now turning to garden leave as the primary mechanism for managing the competitive risk posed by departing employees.

This trend is likely to continue. As remote work expands the geographic scope of competition — an employee who works from home can join a competitor anywhere in the country without physically relocating — the need for mechanisms that protect legitimate business interests will increase. Garden leave, because it compensates the employee during the restriction period, is the most legally defensible and most ethically sound mechanism available.

For employees, the growing prevalence of garden leave clauses means that understanding these provisions is increasingly important. A garden leave clause in your employment agreement is not inherently problematic — but its terms matter, and the negotiation of those terms is best done before you sign, not after you decide to leave.