Understanding Exit Options: PILON or Garden Leave?

What should you use when exiting an employee from your business, PILON or Garden Leave? Navigating the complexities of employment terminations can be challenging for both employers and employees. Two common terms that often arise in this context are PILON which stands for 'Pay in Lieu of Notice' and 'Garden Leave.' While they may seem similar, they are distinct concepts with different implications for both parties. We’re here to break down the differences for you, talk about why it matters to your business and hopefully make it as interesting as possible along the way.

What is PILON?

Imagine you have an employee and for whatever reason, you feel it’s best for all parties if they leave the business. Instead of them working their notice period, you can offer them a lump sum of money equal to what they would have earned during that time.

PILON in a nutshell:

It’s immediate: Essentially the employee's employment ends immediately, and as a result they are not required to work during their notice period.
The money: The employee receives a one-off payment that typically includes the salary and benefits they would have earned during their notice period.
The legal stuff: Contractual vs. Non-Contractual PILON! Some contracts explicitly include a PILON clause which means it can be offered to anyone, while in other cases, a business might offer it to certain employees at their discretion for whatever reason they wish to.

What is Garden Leave?

Similarly to PILON, Garden Leave is another way of an employee exiting a business that isn’t ‘the norm’ process. Essentially, it’s where an employee is granted time off during their notice period, they still remain employed and on the payroll but more often than not, they do not work during this period. The term actually originates from the idea that the employee is to "tend to their garden" during this period.

Garden Leave in a nutshell:

Employment status: The employee remains employed and on the company’s payroll during their notice period.
Restricted access: Although still employed, the employee is typically restricted from accessing company resources, attending the workplace, or working for anyone else during this period.
More legal stuff: As the employment contract is still active, the employee must adhere to their contractual obligations, things like confidentiality and non-compete clauses.

Comparing PILON and Garden Leave:

Purpose and application: PILON is often used for immediate separation, while garden leave serves to restrict the employee’s access to sensitive information and contacts while they are transitioning out.
Impact on employee status: With PILON, the employee's status changes to 'former employee' immediately. In contrast, garden leave maintains the employee's status as 'current employee' until the end of the notice period.
Future employment: Under PILON, an employee can typically start working for another employer right away. During garden leave, restrictions are usually placed on starting new employment.

Which One Should You Choose?

Whether it's PILON or Garden Leave, both have their place in the world of work farewells. The decision depends on various factors including the role that the employee does, the reason that they’re leaving, and the potential impact on the business. For instance, garden leave might be a better option for employees with access to sensitive information, as it allows the employer to protect this information while the employee is transitioning out. As always, it's best to chat with a legal expert if you're unsure about what these options mean for you.