In response to my July 6, 2007, post concerning a prospective client’ s questions regarding employee severance and separation agreements, Pennsylvania employment attorney Michael Moore posted the following comment:

Your comment about “precedent” is right on point for a number of reasons. First, even if your separation agreement includes a confidentiality clause, the information always seems to find its way to the employee grapevine and creates an expectation for future departing employees. Second, sometimes the terminated employee is surprised by being offered severance in return for signing a release. Some of these employees get the impression that the employer has something to hide and that’s why the agreement is being offered. Overall, employers should spend more time thinking about the communication with the departing employee to manage the “perceptions”.

Wed Jul 11, 09:27:00 AM CDT

Thanks much for the comments and compliment Michael. You’ve sparked a few additional ideas.

Relative to confidentiality clauses, I advise clients that they’re only useful when all parties to the agreement keep quiet because enforcing a confidentiality clause can be really costly, especially for a small to medium sized business. Moreover, if a company is reasonably sure that confidentiality will be breached, it might be better to not even do a severance or separation agreement. For example, a client and I recently decided not to offer an exiting employee a severance and separation agreement because we knew that the employee has a big mouth and would tell everyone of the agreement. Sometimes no matter how contentious or difficult the employee is, if the employee is known to have a big mouth, it might be better to make a clean break. Moreover, unless a confidentiality breach has caused a great deal of damage, then a cost-benefit analysis of enforcement (or even doing a release of claims agreement) might lead to the conclusion that pursuing enforcement just isn’t worth it.

Regarding employees’ perceptions of severance and separation agreements, I sometimes speak with clients about the human resources (HR) considerations versus the legal considerations of these agreements. More specifically, just because something is legal doesn’t mean that it’s good HR. For example, offering an exiting employee a severance is arguably good HR, especially if the employee has long tenure and/or is a high performer. However, offering a severance in conjunction with a release of claims agreement, although perfectly legal, might not be good HR because it could imply an entitlement for all in the minds of other employees. Regardless of a confidentiality clause, employees and sometimes even the public find out about separation agreements. For example, Motorola has the reputation of offering exiting executives lucrative severance agreements in conjunction with releases of all claims.

Finally, a little off of the subject, but you mentioned the word “grapevine.” I almost always advise clients to pay close attention to the grapevine regardless of their opinions of gossip. Gossip helps employers get out in front of issues. It helps businesses learn of potential problems before they escalate. This includes breaches of confidentiality agreements. I’ve encountered numerous instances of workplace gossip, which to some extent, turn out to be true, and have come to realize that it’s almost always better to learn of problems from within the company rather than from a 3rd party like a government agency, labor union or employee side attorney.