Hiring a VP After Your Raise? Why “Garden Leave” Might Matter More Than a Non-Compete

You just closed a funding round. Now you need a real VP of Engineering or Sales to help take the company to its next stage.

You pull out the offer letter your company has used for years. It contains a standard non-compete clause.

It looks like protection.

But there is a problem. Non-compete rules have changed quickly across the United States. A clause that once seemed routine may now be difficult or impossible to enforce in the executive’s state.

That creates a practical question for founders:

If a senior executive leaves for a competitor, what can you actually do to protect the company?

One option getting more attention is garden leave.

Garden leave can give a company time to protect customer relationships, transfer responsibilities, and secure institutional knowledge after an executive announces a departure. Unlike an unpaid restriction that simply tells someone where they cannot work, garden leave keeps the executive employed and paid during a defined period.

The legal environment makes this issue more important. More than 35 states have introduced over 150 bills restricting non-competes. Full bans are now in place in California, Minnesota, North Dakota, Oklahoma, and Wyoming. Washington’s ban is scheduled to take effect in 2027, according to a July 2026 overview from Foley & Lardner.

The FTC’s 2024 nationwide non-compete rule was struck down and abandoned in September 2025. The state-by-state restrictions, however, have continued.

At the same time, garden leave has become more common in high-value technology hiring. TechRepublic has reported that DeepMind uses garden leave periods of six months to one year for senior researchers.

For founders hiring executives, this means the old non-compete template deserves another look.

What Is Garden Leave?

Garden leave is a paid notice period.

When an executive resigns, the company keeps the executive employed and continues paying the agreed compensation and benefits for a defined period. During that time, the executive is generally restricted from starting work for a competitor or otherwise engaging in activities that conflict with the company’s interests, subject to the terms of the agreement and applicable law.

The executive is effectively on the payroll but not actively working.

That gives the company time.

A VP of Sales may have months to transfer customer relationships and sales information. A VP of Engineering may have time to hand over product plans, technical responsibilities, and key knowledge.

The company also avoids an immediate handoff to a competitor.

Because garden leave involves continued pay during the notice period, it can be treated differently from an unpaid non-compete in some jurisdictions.

Why Garden Leave Can Be More Useful Than a Non-Compete

The main advantage is that garden leave can address a real business problem without relying entirely on a traditional post-employment non-compete.

Illinois law, for example, expressly excludes garden leave from its definition of a covenant not to compete, according to a 2026 update from Epstein Becker Green.

States that have severely limited non-competes, including California, generally continue to permit paid notice-period arrangements when those arrangements are properly structured and otherwise comply with applicable law.

The exact rules vary by state. That matters because employment restrictions are highly dependent on the facts and the applicable jurisdiction.

Still, the business benefit is straightforward.

Suppose your newly hired VP of Sales resigns on Monday and plans to join a direct competitor immediately. Without a workable protection strategy, your company may have very little time to transfer accounts and protect confidential business information.

With a properly drafted garden leave provision, the company may have several months to manage the transition while continuing to pay the executive.

That period can be valuable.

Garden Leave Is a Hiring Issue, Not a Departure Issue

Founders often think about restrictive covenants after an executive gives notice.

That is too late.

The strongest time to negotiate these provisions is when you are making the offer.

An executive who is excited about joining your company may be willing to agree to reasonable garden leave and confidentiality terms as part of the overall employment package.

Once that person has resigned, the bargaining dynamics change.

You are asking the executive to accept a restriction at exactly the point when they want to start their next job. They have much less reason to agree.

Build the protection into the offer letter from the start.

What Should the Offer Letter Cover?

A garden leave provision should clearly address the length of the leave period.

It should also explain what compensation and benefits continue during that period and what the executive may or may not do while remaining employed.

The agreement should address activities involving competitors and any continuing confidentiality or other restrictive obligations.

Tax and benefits issues also need attention.

Garden leave can interact with Section 409A deferred compensation rules and COBRA obligations. Poor drafting can create a tax or benefits problem while trying to solve an executive retention and transition issue.

The executive’s actual state of residence also matters.

Do not assume that the law where your company is incorporated controls every employment restriction. The executive may live and work in another state with very different rules.

Employment counsel should review the offer based on the executive’s actual circumstances before the agreement is sent.

Common Founder Mistakes

• Copying an old non-compete from a template. Founders often reuse a clause that worked for another executive years ago without checking current law. In several states, traditional non-competes are now void or heavily restricted.
• Removing all protection because non-competes are difficult to enforce. Learning that non-competes have become weaker does not mean a company should abandon every restrictive provision. Doing so can leave a business with little contractual protection when a senior executive moves to a direct competitor.
• Waiting until the executive resigns to negotiate garden leave. Founders sometimes try to introduce a garden leave arrangement after receiving a resignation letter. At that point, the executive has little reason to accept a restriction that could delay their next job.

10-Minute Executive Hiring Self-Check

• Do you know whether a standard non-compete is enforceable in the executive’s state?
• Have you considered paid garden leave as an alternative or additional protection?
• Does the proposed paid leave address Section 409A and COBRA issues?
• Have you included restrictive covenants in the hiring documents rather than waiting until departure?
• Has employment counsel reviewed the actual offer instead of relying only on the company’s standard template?

If you cannot answer yes to all questions, you are not ready to send that offer letter.

Bottom Line

Traditional non-competes are losing ground across the country.

Founders who continue using old employment templates may believe they have protection when the provision is actually unenforceable in the relevant state.

Garden leave can provide a different approach. By keeping a departing executive employed and paid for a defined period, the company can create time for customer transitions, knowledge transfer, and internal planning.

But garden leave is not a plug-and-play clause. State law, compensation, Section 409A, COBRA, and the executive’s location all need review.

The best time to address these issues is when you hire the executive, not after the resignation arrives.

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