Some “garden leaves“The agreements that Wall Street firms use to protect their secrets are expected to survive a new non-compete ban from the Federal Trade Commission.
But some won’t, according to labor lawyers.
The FTC’s ban leaves “an open question” as to whether all garden permit provisions will be enforced, he said. Chris Marquardthead of Alston & Bird’s employment and employment group.
The new FTC rule announced last week could restructures the balance of power in the American workplace making it easier for millions of American workers to leave their existing jobs to work for a competing company or start their own.
But the impact is much less clear on Wall Street, where companies rely on garden permit contracts to keep their secrets intact.
Banks, hedge funds, money managers, or private equity firmspay outgoing employees to take a leave and no work for a certain period – a period long enough so that sensitive information about a pending business or business cannot be shared with a rival company.
These garden leaves can last six months or even a year.
“You’re basically sitting on the bench,” said Marquardt of Alston & Bird.
The key to whether these agreements get the thumbs up from the federal government may be whether a firm satisfies the FTC’s version of paying that worker their “same” wages and benefits during the required leave.
The FTC’s rule states that agreements are permitted where a worker “remains employed and receives the same total annual compensation and benefits on a pro rata basis.”
Some Wall Street firms have reduced pay during layoffs, and those agreements could be invalidated, according to Reed Smith lawyers. Mark Goldstein and Veronica Miclot.
The FTC said it is good to exclude bonuses and other incentive-based compensation from garden leave compensation.
However, Reed Smith’s Samantha Grant said that employers would be prudent to clearly define the prerequisites for earning such compensation to ensure that they are inapplicable to garden leave workers.
If an employee actually leaves during their garden leave, that could also render the agreement invalid.
“I suspect that the FTC will consider certain garden leave periods to be post-employment non-competes and take the position that they are invalid and unenforceable under the rule,” Marquardt said.
The FTC’s comments indicate that, in general, they do not invalidate garden permit terms. But that does not apply across the board; it will likely depend on the specific language of a company’s garden permit provision and other factors.
The FTC define noncompetes such as agreements that expressly prohibit workers from seeking or accepting another job after the end of their employment.
What is clear is that traditional banks retain more control over their employees than, say, private equity firms or hedge funds or asset managers.
That’s because banks are exempt from the new FTC rule. So are certain non-profit organizations, such as health care providers, and even construction sites.
There is another important exception. The FTC’s rule does not apply to non-compete agreements already reached with company CEOs, presidents and company executives who have “policy” authority and are paid more than $151,164 a year.
Some expect companies beyond the financial industry to gravitate to more garden leaves if the FTC’s rule survives legal challenges and takes effect later this year, as expected.
“It’s a sort of way of working around the unfavorable law regarding non-competes,” he said Gregory Browna labor litigation shareholder with Hill Ward Henderson.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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