Garden Leave vs. Covenants Not to Compete

Tim Perri

Review of Law & Economics, 2010, vol. 6, issue 2, 167-179

Abstract: "Garden leave" (GL)---when workers are paid but do not work---may be preferred by firms since courts are more likely to enforce GL than "covenants not to compete" (CNCs). We consider when GL is more profitable than a CNC. Also, assuming it is optimal to offer GL or a CNC, we find (1) the optimal length of either GL or a CNC is the same, (2) firms share fewer trade secrets with GL than with a CNC, and (3) the extent of innovation will be higher with a CNC than with GL.

Date: 2010
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DOI: 10.2202/1555-5879.1408

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