It’s not something that organizations, particularly their HR departments, are too enthusiastic about, but exit interviews are a rich source of information that companies can use positively as they grow in age and experience. Exit interviews, if not framed and structured properly, end up either being a useless exercise or one that leaves a bitter taste in the mouth with unnecessary recriminations and blame. Here are a few guidelines for HR managers to follow when conducting exit interviews:

• The best exit interviews are those conducted face to face, preferably by someone who is not known to the employee, either an outsider or someone from another department. Direct supervisors or managers are the worst choices to hold these interviews. If an employee is not too keen on a direct meeting, a questionnaire could be used to procure the necessary information.

• A useful exit interview must capture employees’ honest opinion of the company, their reasons for leaving, their suggestions for improvement within the company, any problems they may have had within the company, and their views on compensation and job satisfaction. It must also focus on retrieving knowledge specific and relevant to the employee who is leaving, such as contacts and methods that could be used to find and train suitable replacements.

• Exit interviews are more suited to employees who are resigning or leaving the company on their own volition rather than for those who have been laid off or terminated on other grounds. The latter kind would not be too cooperative and the answers they provide may not be a true reflection of the work conditions that prevail in the organization.

• No employee should be forced to attend exit interviews – they must be completely voluntary. Employees must be informed about the purpose of the interview and asked if they would return to the company, if asked, at some future date.

• Exit interviews must not be undertaken as exercises either to defend the company’s policies and practices or to conduct a post mortem on the employee’s performance within the company. The interviewer must adopt a polite and courteous attitude towards the leaving employee, even if the parting of ways is not too amicable.

• The information one infers from an exit interview is most important to the company – allegations and allusions to personal attributes and characteristics do not help. What does make a difference are details that can help improve the company’s management practices and policies in a way to improve customer and employee retention.

Organizations would do well to assess the importance of conducting regular employee feedback sessions during the course of their employment rather than conduct exit interviews after they announce their resignation. While employees who are leaving tend to be more honest since they have nothing to lose by sucking up to their higher ups, anonymous questionnaires also help achieve the same result. At the end of the day though, a constant appraisal of the working atmosphere within the company will help in bringing down attrition rates considerably.

Chuck Krugel’s Comments:  Although exit interviews can provide useful information, and can ease the exit transition, I’m not familiar with research or studies that indicate any sort of cost versus benefit analysis of exit interviews.

Therefore, prior to implementation, I caution employers to determine the costs of conducting exit interviews, and to either research or analyze what types of questions and format of the exit interview will work best for them.  Additionally, if an employer decides to conduct these interviews, implement them across the board, and not on specific employee groups.  This may help to avoid disparate treatment or disparate impact claims.

In other words, in theory, exit interviews can be useful, in practice, pay attention to the what, why, how, when, etc.  Why spend time and money if you can’t clarify the costs and benefits?

Fellow attorney Michael Moore of Russell, Krafft & Gruber, LLP, in Lancaster, PA, sent me the following comment concerning my December 2, 2007, post “Response to Reader’s Questions Regarding Severance & Separation Agreements.”

Chuck:

The strength of a severance agreement containing a nondisclosure agreement and release is always a question that businesses raise with me too. To improve the businesses chances of not getting into litigation, I suggest that any severance payment be made over time rather than in a lump sum. That gives the business the opportunity to stop payment if there is a problem and the former employee is not likely to sue if he is still owed money. I try to spread the payments out past the limitations period of filing an EEOC complaint, if possible. Repaying the money if you sue would be great; however, the tender back of consideration is problematic under the Older Worker Benefit Protection Act provisions of the ADEA. Sometimes, I will allocate some money to the nondisclosure portion of the severance agreement and provide that it must be repaid as liquidated damages if there is a breach or suit is filed.

One of the biggest problems with litigating breaches of nondisclosure agreements is that it can place customers in the middle of a legal battle which is really bad for business. Businesses should know this risk is there.

Michel is right. An installment or spread payment schedule is one of the best ways to prevent and discourage a breach.

Hi Charles ,

Thanks for throwing light on this subject ! However, I have a few doubts and would appreciate if You could help resolve them:

1. What is the guarantee that the exiting employee would not reveal the secrets / sue the firm even after signing the severance agreement / taking the money ?

2. is this a common practice in US / other parts of the world?

3. If this is a common practice with the organizations in the US , most of the companies would end up busting their HR budgets by paying severance to the exiting employees and all working population must be aware of this .. your views ..

Regards

Ritu Anand

HR

GE – India

My response to Ritu follows:

Hi Ritu,

Thanks for your questions. They’re excellent and thoughtful. I’m going to post them and my responses to the HR Community’s list serve and on my website.

I’m answering your questions in the same order and number you asked them.

1. What is the guarantee that the exiting employee would not reveal the secrets/sue the firm even after signing the severance agreement/taking the money?

Answer: As a means to discouraging the employee conduct you refer to, all severance and separation agreements should permit the employer to recover damages, costs and expenses from the employee (assuming the legal system permits such recovery). This won’t absolutely prevent an exiting employee from talking, but it increases the likelihood that they won’t breach the agreement.

Even if a severance or separation agreement prohibits disclosure, if the ex-employee breaches, the employer still needs to take enforcement action. This does not necessarily mean that the employer has to sue the ex-employee. The employer can issue some type of warning (letter, phone call, etc.), or the employer can contact competitors and warn them about using such secrets. The latter action poses its own risks due to ethical concerns, antitrust, defamation, libel and slander concerns. Obviously, the most extreme action an employer can legally take is to actually sue the ex-employee for breaching the agreement. A lawsuit will cost the business time and money, even if they can recover damages, costs and expenses from the employee.

With respect to a lawsuit or some other sort of complaint by the ex-employee, this is easier to deal with. As long as the terms of the agreement’s confidentiality, nondisclosure and other prohibitions are legally compliant, no court or other sort of tribunal should adjudicate a lawsuit or complaint, and all costs, expenses and damages should be awarded to the employer.

2. Is this a common practice in US/other parts of the world?

Answer: Yes, this is a common practice in the U.S., and it has been increasing in popularity. These agreements used to be reserved for top executives and are now being used for employees at all levels. The confidentiality and noncompete aspects of these agreements are also commonly used for pre-employment agreements between employers and employees.

With respect to its popularity in other parts of the world, it depends on the nation’s, province’s or region’s legal system. Common law and “Westernized” legal systems are likely to uphold severance and separation agreements as they’re mutually agreed to contracts with valuable consideration exchanged between the parties. Additionally, more capitalistic economies ( e.g., former Soviet-bloc nations) might be more prone to honor such agreements as the protection of the employer’s property (capital) is paramount to innovation and profitability. However, these same legal systems will take measures to protect and ensure an individual’s ability to apply their skills, trade, knowledge and abilities in an unrestricted manner. After all, if individuals cannot freely earn a living, then they cannot consume the goods and services employers produce, and businesses will lose money.

3. If this is a common practice with the organizations in the US , most of the companies would end up busting their HR budgets by paying severance to the exiting employees and all working population must be aware of this .. your views ..

Answer: I briefly discussed your concern in my article. Excerpted below:

“Clients typically ask whether by offering an employee a severance, separation, or some hybrid agreement, they’re setting a legal precedent within their company or creating a feeling or belief of entitlement to such a benefit among employees. In short it’s not likely that the company will be legally obligated to offer the same to other employees. However, if other employees learn about such agreements, there’s a greater degree of possibility that a sense of entitlement will result. So, when deciding whether to use a separation or severance agreement, a business should consider the impact on employee morale, and to at least some extent consider the legal ramifications of using such an agreement.”

To expand further upon this, you might be right to say that “[i]f this is a common practice with the organizations in the US , most of the companies would end up busting their HR budgets by paying severance to the exiting employees.”

There are U.S. companies which have a reputation for caving in to exiting employee demands for large severances because they’re afraid of the public relations ramifications of lawsuits, complaints, ill-will, etc. Some companies just think it’s cheaper to offer money than to defend their record. But, as I indicated above, the likelihood of a legal precedent being set is minimal.

The concerns regarding employee morale and feelings of entitlement can be combated by offering severance and separation agreements infrequently or in extreme circumstances (e.g., in order to protect company confidentiality, capital, etc.), and making it clear to employees that they are at-will employees (if applicable). In other words, it’s relatively easy in an article like this to state in a generic and sterile manner what should or shouldn’t be done. It’s a completely different matter to actually draft and execute an agreement in a way that sufficiently communicates to a particular employee and the entire workforce that this is an isolated and unique circumstance, and a serious and binding agreement with provisions that must be honored. In short, how individual businesses and practitioners implement severance and separation agreements is crucial. Issues with execution are what leads to misunderstandings, disputes and your questions. I personally believe that many of the issues you allude to are avoidable and resolvable via a professionally drafted and executed severance or separation agreement and the advise of competent legal counsel.

Now, a few caveats. My original statement, as well as my response to your questions, are general statements and not intended as legal advice nor do my statements create any sort of attorney-client relationship. Moreover, as stated above, every circumstance is unique and might require its own unique agreement, contract and mode of execution. Again, consult competent legal counsel before taking any action.

I hope that this answers your questions. Feel free to ask for additional information or opinions. Moreover, thanks for taking the time to read the article.

Generally, severance refers to giving an exiting employee a monetary bonus or settlement above and beyond their regular compensation. A separation agreement usually refers to an agreement wherein the exiting employee promises not to sue, file a regulatory agency complaint, take business or information with them, or compete with their former employer. In return, the employer gives the employee something of value (usually money).

So, a business could give an exiting employee severance without a severance or separation agreement, but usually doesn’t use a separation agreement without awarding some form of severance (i.e., consideration). If this is confusing, the below will hopefully clarify my point.

Recently, a client asked me about a separation agreement for an employee over the age of 40. This makes an interesting topic for a blog post (at least for a labor & employment law related blog :-) ).

Relative to dealing with an employee who’s 40 or older, if the employer is seeking a release of all claims pursuant to the Age Discrimination in Employment Act (ADEA), there’s a 21/7 rule that applies. Under the rule, which is actually contained in Section 201 of the Older Workers Benefit Protection Act, a release of claims under the ADEA is only valid if the employee’s release is “knowing and voluntary.” More specifically, in order to be “knowing and voluntary,” the exiting employee has 21 days to review the agreement, with or without legal counsel, and has an additional seven days in which to revoke their signature (beyond the initial 21 day review period). Other requirements may apply given certain considerations. In short, depending on the nature of the separation agreement, the 40 and older employee might have rights not afforded to younger employees.

Regardless of the exiting employee’s age, a separation or severance agreement that’s intended to release the employer from all known or unknown claims is essentially the employer’s purchase of the employee’s agreement not to sue or file a complaint with a government agency, not to take business or information to a competitor, or sometimes, to not even work for a competitor.

When I’m initially contacted about this type of employment agreement, I ask the client why they think they need such an agreement. More specifically, what are your goals/purposes: to reward an exiting employee for tenure and/or quality of service, to prevent a lawsuit or complaint from being filed, to protect the confidentiality of company secrets and information, to prevent an employee from competing with them, or a combination of the aforementioned?

Businesses often ask:

• Should we offer severance to an exiting employee?
• When should we offer it?
• How much should we offer?
• Are the terms negotiable?
• Should we ask an exiting employee to sign a separation agreement that includes noncompete and confidentiality clauses?
• What about protected class considerations (e.g., race, sex, age, disability, etc.)?
• What will my other employees or competitors think if they find out that an employee signed such an agreement or received severance?

In order to help the employer focus on what issues they need to resolve, a business should analyze whether the exiting employee has been contentious or dropped hints of a lawsuit or complaint, or commented about the competition or competing with the employer. In order to help focus the employer on what issues they need to resolve, a business should analyze whether the exiting employee has been contentious or dropped hints of a lawsuit or complaint, or commented about the competition or competing with the employer. If an employer believes that an employee will sue or complain to a regulatory agency, then a separation or separation agreement should be strongly considered. If a lawsuit, complaint or any other factors of the employee’s exit isn’t a concern, then a severance or even no action might be appropriate.

Keep in mind, that unless there’s a contract or agreement to the contrary, or obligations under the Worker Adjustment Retraining & Notification Act (WARN), severance isn’t necessarily required, and in many instances an employee can just leave.

Clients typically ask whether by offering an employee a severance, separation, or some hybrid agreement, they’re setting a legal precedent within their company or creating a feeling or belief of entitlement to such a benefit among employees. In short it’s not likely that the company will be legally obligated to offer the same to other employees. However, if other employees learn about such agreements, there’s a greater degree of possibility that a sense of entitlement will result. So, when deciding whether to use a separation or severance agreement, a business should consider the impact on employee morale, and to at least some extent consider the legal ramifications of using such an agreement.

One way of reaching a bottom line for these agreements is that an employer should not enter into an agreement with an employee, and have to engage an attorney, unless the employer is reasonably sure that they’ll obtain a benefit from the transaction that they wouldn’t get in the normal course of business. Ultimately, as with most business decisions, whether to utilize an agreement or not is a cost versus benefit analysis.

Consistent with my Disclaimer the above is a general discussion–i.e., every specific issue or case leads to its own specific resolution and should be handled accordingly.

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.