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Garden Leave vs. Covenants Not to Compete

  • Perri Timothy J.

    (Department of Economics, Appalachian State University)

“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.

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Article provided by De Gruyter in its journal Review of Law & Economics.

Volume (Year): 6 (2010)
Issue (Month): 2 (August)
Pages: 167-179

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Handle: RePEc:bpj:rlecon:v:6:y:2010:i:2:n:2
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  1. Matthias Kräkel & Dirk Sliwka, 2009. "Should You Allow Your Employee To Become Your Competitor? On Noncompete Agreements In Employment Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 117-141, 02.
  2. April M. Franco & Matthew F. Mitchell, 2008. "Covenants not to Compete, Labor Mobility, and Industry Dynamics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 581-606, 09.
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