Risk Management

The Unhappiness of Divorce

Amazon.com flap shows that separation agreements, in business as in marriage, can breed discontent.
David KatzFebruary 15, 2001

Like divorces, severance agreements between companies and laid-off employees have a certain amount of unhappiness built into them—for all parties concerned.

But the separation pact Amazon.com offered the employees it recently let go seems to have bred more—and certainly more visible—discontent than is usual.

Did the agreement create a bigger stir than was necessary—blowing up in the employer’s face and producing excessive pain among the severed workers?

Did the company make missteps, or was the pain inevitable?

With layoffs in general mounting daily, especially in the dot-com world, the Amazon separation agreement is a cautionary tale for senior executives about to seek severance agreements along with their labor cutbacks.

After the online retailer announced January 30 that it would cut 1,300 jobs, or 15 percent of its overall workforce, it offered a portion of its employees the option of an “Enhanced Severance Package” on top of a basic package, including two weeks of severance pay. (The company also reportedly put $2.5 million of company stock into a trust fund to be cashed out in 2003 and distributed among laid-off workers.)

The enhanced package includes 10 weeks of added severance pay plus $500. But to get that, laid-off employees must sign a separation agreement. At first, workers had a little over a week to decide whether to sign the agreement, which included a “nondisparagement clause.”

Under that non-trash-talk clause, as such language is colorfully referred to, workers agree “to not make any derogatory comment in any format, whether written, oral, to the press or any individual or entity regarding the company that relates to the company’s business or related activities or the relationship between the parties.”

The tight deadline and the clause made certain laid-off workers and the Washington Alliance of Technology Workers, which had sought to organize the Seattle office, see red.

Apparently responding to the flap, Amazon reversed course. A few days after issuing the agreement, it told hourly workers (but not management and salaried workers) to delete the non-disparagement clause, said a story in the Seattle Post-Intelligencer. A few days later, Amazon extended the deadline for deciding whether to sign the agreement through May 4 or May 25, the termination dates for the employees.

For its part, Amazon, which could not be reached for comment, was left with egg on its face. A Feb. 1 headline in CNET.com, for instance, read “Amazon backpedals on trash-talking clause.” The company seemed to be acknowledging it had made the wrong move.

The union, while applauding the changes, still objects to two clauses in the agreement in which the employee would waive past legal claims against the company and agree not to sue Amazon in the future.

Among other things, the union claims that surrendering the future right to sue is unenforceable and that the agreement illegally interferes with the Equal Employment Opportunity Commission’s authority to investigate workplace discrimination, says Marcus Courtney, a co- founder of the union, which has 250 dues-paying members.

“What they’re trying to do is intimidate people and cloud up…the true scope of what the separation agreement is” by suggesting the lawsuit waiver is enforceable, Courtney charges.

It’s impossible to say for sure whether Amazon had intimidation in mind, although employment lawyers say that such agreements are routine. But Courtney’s comments about the hurt feelings of workers echo a widely reported sense of betrayal on the part of laid-off dot- com workers.

“If Amazon really respects employees, [it wouldn’t] have them sign such broad agreements,” the union organizer asserts, forcing workers to “choose between their rights and more pay.”

In general, the management of dot-coms has been offering up “tremendous amounts of hype,” he asserts. Asking employees to work 60-hour weeks, he adds, these companies declare that “you can’t come here and expect to work 40 hours. We’re here to change the world.”

And then the worker is out on the street. The widely reported bitterness of young dot-com workers seems an inevitable result of the mixture of unrealistically high expectations and a lack of experience in the job market.

But you pay your money and you take your choice. As D. Michael Reilly, an employment lawyer with the Lane Powell Spears Lubersky law firm in Seattle, puts it, “there are no guarantees with any job.”

If dot-com workers were promised the world, “they should be aware of [whom it was] who promised it,” says Reilly, who represented Wal-Mart in a 1998 case against Amazon.com in which the latter was charged with conspiring to steal Wal-Mart’s trade secrets by recruiting its workers. (The suit was settled in 1999.)

Too Broad an Agreement

Even if Amazon couldn’t have avoided—and wasn’t really responsible for— such feelings of bitterness, the company blundered in asking rank-and- file workers to sign a non-disparagement agreement. It was an unnecessary overreaching, a quest to control a group that didn’t need to be controlled that heavily.

“It’s not typical for a company to have online non-managers signing nondisparagements,” Reilly says, noting that negative statements of such workers don’t have the weight of those made by managers.

One hazard, he says, is that “you can almost scare employees away by having them sign too much.”

Ironically, Amazon also “lost part of the battle because they got so much bad press” from asking laid-off line workers to sign the non- disparagement, says Reilly. “The goal was to look good.”

Further, Amazon created the impression that it was threatening workers’ free-speech rights. John L. Monroe Jr., a partner with Ford & Harrison, an Atlanta law firm, says employers that use nondisparagements “may run into First Amendment provisions.”

Reilly disagrees. The issue doesn’t really involve free speech if workers are offered compensation for signing a nondisparagement and if they have the choice of not signing it. After all, he says, “they don’t have to buy this thing.”

Reilly, in fact, thinks that nondisparagements are often a legitimate and useful tool. Senior executives just “have to weigh the costs versus the benefits” of how they’re applied, the lawyer says.

For instance, Amazon’s clause might have caused such an uproar because it was offered to such a big group of line workers, Reilly says. If only five to 20 workers were involved, there might not have been such a stir.

Executives should also think about fine-tuning non-trash-talking language. “Don’t [draw up the language] just as a matter of course, evaluate it,” he says, observing that another problem with the Amazon agreement was that the company had a single “blueprint” to apply to every worker.

Instead, employers should think about providing more or less severe language to different groups. On the least stringent level, a company could provide a “one liner” that simply says “the parties agree that the employer will provide a positive job reference and the employee won’t cast the company in a bad light,” he says.

That could range up to a much “beefier” kind of arrangement that involves, say, the payment of a penalty of $10,000 for each disparagement, he adds.

But overall, widespread use of nondisparagements for former managers makes a great deal of sense in the Internet age, the lawyer thinks. Previously, making negative statements about a company to other individuals or even to reporters didn’t have much of an effect on the company’s image or its ability to attract talented executives.

But the Internet “has changed how you can disparage a company,” Reilly says. That’s especially true when a former manager can set up a Web page that could be called “Xcompanysucks.com,” he adds.

The thing for senior executives to remember about separation agreements and disparagement clauses, then, is that if they’re handled with sensitivity, they can be essential tools for preserving a company’s good name in a tight labor market.

The irony is that, if they’re applied in the heavy-handed way that Amazon applied them, they can hurt the very image they’re designed to protect.