10/12/2020

ADOPTING GARDEN LEAVE: Our Non-Competes / Solicitations Are Old, Tired, and Ready for Retirement!

The information provided in this post does not, and is not intended to, constitute legal advice; instead, the information and content are for general informational purposes only.  Information in this post may not constitute the most up-to-date legal information in your State.

In this post, we will share our thoughts and experiences on the usefulness of non-competes / solicitations and offer an alternative that not only works better but will reduce your stress a little relating to hiring, resignations, and terminations.

If any of this resonates with you, send us an email or comment on LinkedIn and we will email you a full draft copy of Garden Leave language written by an employment lawyer from Duane Morris.

To receive your free draft copy of Garden Leave language, please email support@ibdgsolutions.com

They had a great run, but like fax machines and my iPhone 4, it’s time for an upgrade

We predict that within five years, non-solicit and non-compete employment agreements will be obsolete, largely because of their ineffectiveness, and States continued disagreement with their use.

If you have lived in a c-suite or been a team leader for a bank anytime during the last two decades, you have probably had a bad experience with non-competes and non-solicitations.  Whether they are coming into your bank with a new hire or leaving your bank after a resignation, these agreements, like cockroaches and rats, never seem to go away for good.

Here are the four employment agreement options most of us are told we have when it comes to protecting our intellectual property and client relationships:

  1. Non-Solicitation language preventing the recruitment of existing employees and clients
  2. Non-Competition language preventing the ability to compete against us (nearly impossible to enforce in most states)
  3. Use both non-solicit and non-compete language
  4. Have no non-compete or non-solicit language at all (this option is our recommendation)

That’s it – these four options are literally how nearly 100% of all banks handle the contractual relationship between themselves and their business development-oriented bankers.

We believe there is a much more effective way to manage those relationships. But before we dive into that, here are six observations we have witnessed first-hand over the last three decades of working for hundreds, if not thousands of banks:

  1. These agreements rarely work and are energy-sucking parasites for both sides. Let’s be frank – we really only care about the “regretted attrition” – the top producers. Of course, we all value every person that works for our firms.  But relating to their ability to take business when they leave, we don’t worry too much about the 9th best mortgage lender in a department of 10.  But we have to treat them the same because of these antiquated agreements!  Makes no sense. If our clients and customers want to follow a banker to another bank, these agreements do absolutely nothing to prevent that. But what they can do is give your legal department or counsel a reason to waste time, resources, and money pursuing something that is statistically not going to give you the desired outcome you seek.
  1. These agreements sometimes prevent us from making good hires. A great BDO is a great BDO regardless of what type of employment agreement is attached to him or her. This isn’t that common, but we do know some c-suite folks that will not hire a BDO that has a non-solicitation.
  1. Good lawyers have figured out how to get around non-solicitations – and it’s not hard. We have been on the conference calls with the lawyers coaching a high-level BDO on what to do and not do to get their clients to follow them. Here is a typical call:
        • As soon as you leave, write down every name with contact info that you can remember. Your memory is not the intellectual property of your former employer.
        • Send announcements without solicitation language.
        • Call to let them know you have moved. Say you enjoyed working with them and wish them well. Use a written script that has no solicitation language. If the former client asks if he can still do business with you, you are no longer in violation of your agreement (see #1, letter b above).       
  1. Commercial banks seem to be the last large industry in finance to use non-solicitations and non-competes on a regular basis. Most industries in finance have already moved away from non-solicitations and non-competes.
    • Law firms (ironic), investment banks, mutual fund companies, wealth management firms, corporate insurance firms, capital markets firms, and large CPA firms are all moving away from these agreements.
    • A few industries (brokerage firms as an example) have entirely eliminated them. The reason? They were all spending too much money suing each other.
  1. We are mostly 24/7 digitally connected to our careers now and our employment agreements need to reflect that kind of environment.
  1. Garden leave agreements are a good recruiting tool and demonstrate the progressive nature of your bank. Top producers pay attention to that.  Many do not like non-competes and non-solicitations and sometimes view banks unfavorably that use them.

THE GARDEN LEAVE AGREEMENT

The basics of garden leave:

  • Employee is required to give a certain period of notice prior to leaving. You basically pay them to not work during this time.
    • can be shortened on a case-by-case basis at your discretion
  • Time period of notice can be customized per position (few examples below)
    • AVP/VP – Revenue Generating Banker; 30 days
    • Mortgage Lender; 30 days
    • VP on up – Revenue Generating Banker; 60 days
    • High-End Revenue Generating Bankers ($1MM+); 90 days
  • Applies mostly to revenue-generating types of employees and leadership only
  • Applies to resignations only – not terminations (see individual State law on this)
  • Rarely exceeds 90 days – most 30 to 60 days

As articulated in www.law.com:

“A garden leave provision is one in which the employee is required to give a certain period of notice prior to terminating employment. The garden leave clause provides the employer the right to change the employee’s duties or effectively suspend the employee for the balance of the notice period. During the notice or garden leave period, the employee remains an employee, subject to the direction and control of the employer and receiving at least base salary compensation. The commonly articulated rationale of employers seeking enforcement of the clause is that placing the employee in the garden before joining a competitor serves to protect the employer’s trade secrets and goodwill with clients and provides an opportunity to implement a seamless transition of employee responsibilities free from interference from the departing employee. In some industries, the clause was attractive to employers as it, at first blush, appeared less onerous than a non-compete provision, while at the same time providing the possibility of very similar protection to the employer.”

To receive your free draft copy of Garden Leave language, please email support@ibdgsolutions.com

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