Garden leave clause is an extremely useful tool for employers to mitigate the impact of employees (usually a senior employee) exiting an establishment, by providing (a) transition period, to phase out the incumbent employee, and (b) bedding period for his or her replacement. It is common to find a garden leave clause in employment contracts of key employees of establishments who (a) have significant knowledge of day-to-today affairs of the establishments, or (b) are engaged in a highly technical industry (such as pharma, banking and financial services, biotechnology, etc.), or (c) possess significant trade secrets and confidential information. In practice, such a clause entails the employee in question being excluded from the workplace or being limited to a peripheral role, instilling a sort of Chinese firewall so as to minimize or eliminate their exposure to critical matters that impact the day-to-day affairs of the establishment.
The garden leave clause is normally included in employment contracts and kicks in once the employee in question has begun serving his or her notice period. It remains effective for the entirety of the notice period and in some instances may even extend beyond the contractual notice period.
While garden leave provisions have been widely accepted and are common around the world, there have been instances where Indian Courts have found such a clause to (a) fall foul of Section 27 of the Indian Contract Act, 1872 (“the Act”), and (b) be in disguise as a restraint of trade.
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