How is Garden Leave Pay Calculated?
Understanding the Calculation of Garden Leave
The garden leave provision in the Non Compete Act requires payment of 50% of your highest average base salary paid within the two years preceding the termination of employment.
Many people who are subject to non compete agreements are compensated with a base salary and a commission or incentive structure. Particularly if you are in sales, commissions may make up a substantial portion of your total compensation. The statute, however, only requires the payment to be based on your "annualized base salary." This means in practice you may end up with less than 50% of your compensation as garden leave.
The statute also allows the employer and employee to agree to a different garden leave payment, as long as it is in the agreement. It is unclear whether courts will allow employers to put in a "mutually agreed" amount that is less than 50% of base salary, though the wording of the statute suggests that this is a minimum.
If you are accepting a position with significant commission or bonus pay, and you have any ability to negotiate terms, this could be an opportunity to capture your true compensation in the garden leave provision.
Learn more here about the garden leave requirement of the Massachusetts Non Compete Act.
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