Meaning
Contractual clauses that reduce the compensation owed to an employee on garden leave by the amount they earn from new employment protect the employer from double-payment. Implementing a garden leave offset ensures that a departing employee does not receive two full salaries during the period they are restricted from working for a competitor. This provision applies specifically during the notice period before the employment contract fully terminates.
Contractual Mechanism
Employment contracts incorporate these clauses to minimize the financial burden of keeping an executive out of the market. To apply a garden leave offset, the employer monitors the departing worker’s professional activities and new sources of income. If the employee secures a position before the notice period expires, the current employer reduces their pay by the new salary amount.
Mitigation Clause
Enforcing these reductions requires clear contract language and immediate disclosure of any new income by the employee. Under a standard garden leave offset, the worker must notify the employer as soon as they receive an offer or begin generating professional revenue. If the employee fails to disclose new earnings, the employer can claw back the overpaid salary.
Financial Impact
This financial adjustment significantly reduces the cost of enforcing non-compete restrictions against departing executives. Employers can keep valuable staff out of the competitor’s hands without incurring the full cost of their salary if the executive quickly secures alternative non-competing work. However, if the executive remains inactive, the offset cannot be applied, leaving the company liable for the full pay.
Therefore, the total financial savings from this clause depend entirely on the career movement of the departing employee, making it a valuable tool in sectors with high talent turnover.
