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Garden Leave vs. Covenants Not to Compete

Author

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  • Perri Timothy J.

    (Department of Economics, Appalachian State University)

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.

Suggested Citation

  • Perri Timothy J., 2010. "Garden Leave vs. Covenants Not to Compete," Review of Law & Economics, De Gruyter, vol. 6(2), pages 167-179, August.
    • Handle: RePEc:bpj:rlecon:v:6:y:2010:i:2:n:2
    DOI: 10.2202/1555-5879.1408
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    References listed on IDEAS

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    1. Johan Den Hertog, 2003. "Noncompetition Clauses: Unreasonable or Efficient?," European Journal of Law and Economics, Springer, vol. 15(2), pages 111-127, March.
    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, September.
    3. 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, February.
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    Cited by:

    1. Anand, Smriti & Hasan, Iftekhar & Sharma, Priyanka & Wang, Haizhi, 2017. "Enforceability of non-complete agreements: When does state stifle productivity?," Bank of Finland Research Discussion Papers 24/2017, Bank of Finland.
    2. Anand, Smriti & Hasan, Iftekhar & Sharma, Priyanka & Wang, Haizhi, 2017. "Enforceability of non-complete agreements : When does state stifle productivity?," Research Discussion Papers 24/2017, Bank of Finland.
    3. Azevedo, Alcino & Pereira, Paulo J. & Rodrigues, Artur, 2018. "Non-compete covenants, litigation and garden leaves," Journal of Business Research, Elsevier, vol. 88(C), pages 197-211.

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    More about this item

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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