Non-compete covenants, litigation and garden leaves

Alcino Azevedo; Paulo J. Pereira; Artur Rodrigues

doi:10.1016/j.jbusres.2018.03.020

Non-compete covenants, litigation and garden leaves

Alcino Azevedo, Paulo J. Pereira, Artur Rodrigues

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Abstract

We develop a dynamic model which assesses non-compete covenants (NCC) and garden leaves (GL) and examine the effect of the uncertainty, embargo period and severance payment on the manager's behavior and the reimbursement amount that is due to the firm if there is a violation of the NCC. We find that if the firm wants to deter the manager from leaving, the NCC is more effective than the GL when the industry uncertainty is low, or the embargo period is long, or the salary of the manager now or when working outside the industry is low, or the salary of the manager when working for the competitor or the gain of the competitor due to the arrival of the manager is high. Otherwise, the GL is more advisable. However, contrary to the usual higher tolerance about GL, our results show that, overall, NCC are less harmful than GL.

Original language	English
Pages (from-to)	197-211
Journal	Journal of Business Research
Volume	88
Early online date	30 Mar 2018
DOIs	https://doi.org/10.1016/j.jbusres.2018.03.020
Publication status	Published - Jul 2018

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10.1016/j.jbusres.2018.03.020

non-compete convenants and garden leaves
© 2018, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 1.91 MBLicence: CC BY-NC-ND 3.0

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title = "Non-compete covenants, litigation and garden leaves",

abstract = "We develop a dynamic model which assesses non-compete covenants (NCC) and garden leaves (GL) and examine the effect of the uncertainty, embargo period and severance payment on the manager's behavior and the reimbursement amount that is due to the firm if there is a violation of the NCC. We find that if the firm wants to deter the manager from leaving, the NCC is more effective than the GL when the industry uncertainty is low, or the embargo period is long, or the salary of the manager now or when working outside the industry is low, or the salary of the manager when working for the competitor or the gain of the competitor due to the arrival of the manager is high. Otherwise, the GL is more advisable. However, contrary to the usual higher tolerance about GL, our results show that, overall, NCC are less harmful than GL.",

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AU - Azevedo, Alcino

AU - Pereira, Paulo J.

AU - Rodrigues, Artur

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AB - We develop a dynamic model which assesses non-compete covenants (NCC) and garden leaves (GL) and examine the effect of the uncertainty, embargo period and severance payment on the manager's behavior and the reimbursement amount that is due to the firm if there is a violation of the NCC. We find that if the firm wants to deter the manager from leaving, the NCC is more effective than the GL when the industry uncertainty is low, or the embargo period is long, or the salary of the manager now or when working outside the industry is low, or the salary of the manager when working for the competitor or the gain of the competitor due to the arrival of the manager is high. Otherwise, the GL is more advisable. However, contrary to the usual higher tolerance about GL, our results show that, overall, NCC are less harmful than GL.

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JO - Journal of Business Research

JF - Journal of Business Research

ER -

Non-compete covenants, litigation and garden leaves

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