Why I don't like most non-disparagement clauses (and 3 tips to fix them)

Will Blythe recently penned an op-ed in the New York Times entitled, Fired? Speak No Evil. In this piece, Mr. Blythe chronicled his recent job loss, and why he refused to sign a separation agreement that included a non-disparagement clause.

Like Mr. Blythe, I don’t like most non-disparagement clauses. Theses causes are exceedingly common in separation and settlement agreements. But, familiarity does not breed sensibility. These clauses are hard to control, hard to enforce, and encourage more litigation, not less.

Yet, most employers will insist on including these clauses in their agreements to hedge against the dead speaking ill of them. For your consideration, here are a three drafting points for your next non-disparagement clause:

     1. Hard to control? Who does a non-disparagement clause bind? If it just says, “Employer,” how does the agreement define “employer?” Even if you’re a small organization, can you control what Joe-coworker says about your departing employee, and do you want to have to advise every employee in your organization about potential non-disparagement obligations, and control what they say? I have two suggestions to help ease the pain of this issue. First, define who, specifically, the clause covers; don’t leave it open-ended to bind your entire organization. Second, at least as job references are concerned, put some controls in place. Define who is to be contacted, and what that contact-person is permitted to say. Even consider a predetermined script to limit any potential violations.

     2. Hard to enforce? Most non-disparagement clauses say something like, “Employer [and Employer] agree not to disparage, or make any negative comments about, the other,” which simply begs the question, what do “disparage” and “negative comments” mean? If you are serious about including this clause, define the terms. For example, your state will have a well-developed body of case law discussing and defining the meaning of defamation. This case law is a great starting point (and, maybe, end point) for this definition.

     3. Encouraging litigation? If a separation leaves bad blood between the parties, a non-disparagement clause is an easy way for a spiteful ex-employee or ex-employer to drag the other back into court. Separation and settlement agreements are supposed to end the parties’ relationship and cease litigation, not act as a breeding ground for more. To cure this ill, tie a loser-pays clause to this provision. If a losing parties has to pay the other’s attorneys’ fees, one will think long and hard before exercising the right to sue for a breach of a non-disparagement clause.

Non-disparagement clauses are ripe for sloppy and vague drafting, which can result in parties ending up where they wanted to avoid—the courthouse. Following these three tips will help you shore up your language to create non-disparagement clauses that you can actually rely upon, and, if necessary, enforce.

Court concludes that “common slang” does not violate non-disparagement clause in severance agreement

I’ve seldom, if ever, negotiated a separation or settled an employment dispute for an employer without insisting that a non-disparagement clause be part of the signed agreement. The reasoning is simple—it’s not in a company’s best interest to have an ex-employee running around bad-mouthing it or trashing its reputation. The reality, however, is that a clause in a contract is only as good as one’s ability to enforce it when breached. In Ohio Education Assn. v. Lopez (10/19/2010) [pdf], one Ohio appellate court has removed a good deal of the bite from this class of clauses in separation and settlement agreements.

The facts of Lopez are straight-forward. In connection with the resignation of its assistant executive director and general counsel, the Ohio Education Association presented Lopez with a severance agreement. The agreement contained the following non-disparagement language, which is similar to that which you will find in most such agreements:

Employee further agrees not to at any time disparage, defame, or otherwise derogate Employer’s Officers, Executive, Committee Members, employees or agents.

OEA sued Lopez for an alleged breach of that clause by leaving the following voicemail for its outside counsel:

Davey, you never call me anymore. This is el jeffe. Call me sometime. I’m all settled with the OEA so you don’t have to worry about this gag order and all this s___ that slimebag Reardon said to you. So call me…. Bye.

The court of appeals concluded that while the voicemail did breach the non-disparagement clause, the breach was immaterial and therefore not actionable:

Here, the purpose of the separation agreement was to end the employment relationship and resolve all disputes. The nondisparagement provision was a negotiated term of the agreement. The provision OEA alleged Lopez breached uses the terms “disparage, defame, or otherwise derogate.” All of these terms connote harming a person’s reputation or causing one to seem inferior. The term “slimebag” is a common slang expression meaning “[a] despicable person, usually a male.” McGraw-Hill Dictionary of American Slang and Colloquial Expressions (4th ed.2006), 323…. This kind of trifling figure of speech is of so little consequence it cannot be said to be material and should be disregarded…. [T]he slang expression is such a part of modern casual speech as to be almost meaningless. OEA could not demonstrate that the message caused any damage to OEA or Reardon.

Because this case requires a showing of actual harm to prove a material breach of a non-disparagement clause, it will make it that much more difficult to enforce these provisions. Nevertheless, they remain an important part of any severance or settlement agreement because: 1) they establish the expectation that ex-employees are to act professionally and business-like when talking about your organization, and 2) protect your business from the malicious speech intended to cause real harm.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Confidentiality of personnel records help protect employers from defamation liability

Most people are not confrontational by nature. Maybe that is why many employers are lax about accurately documenting employees’ performance problems. People like to give others the benefit of the doubt, not make waves, and not hurt feelings. It only becomes a problem when an employee becomes an ex-employee and files a lawsuit. At that point, it becomes difficult to explain why an employee with good performance reviews and scant written discipline was fired for performance problems.

One thing that businesses should not have to worry about from negative information in employees’ personnel files is defamation liability. Outlaw v. Werner (Cuyahoga County 5/21/09) [PDF] involved a patient who sued her doctor for defamation based on negative information written in her chart. In affirming the dismissal of her defamation claim, the court commented that defamation liability cannot be premised on information that is kept confidential. Most employers would agree that employees’ personnel files are confidential. Indeed, not even the employee has a right to see his or her own file. Nevertheless, it is not a bad idea to build a policy into your handbook making clear that personnel files are confidential.

For more on the importance of accurately documenting employees’ performance histories and problems, take a look at the following posts from the archives:

• A textbook example in handling a problem employee.
• ‘Tis the season… for employee theft.
• Failure to document performance problems dooms employer's defense.
• Penny-wise, pound-foolish employment practices.
• And finally, Document, document, document!

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Guarding against defamation liability

Courtesy of my friends at PointofLaw.com is the story of the dangers that lurk when distributing information about an employee’s termination.

Staples fired one of its salesmen, Alan Noonan, after an internal audit discovered he had deliberately falsified expense reports. The day after his termination, Staples’s Executive Vice President sent the following email to all of the company’s North American employees:

It is with sincere regret that I must inform you of the termination of Alan Noonan’s employment with Staples. A thorough investigation determined that Alan was not in compliance with our [travel and expenses] policies. As always, our policies are consistently applied to everyone and compliance is mandatory on everyone's part. It is incumbent on all managers to understand Staples[’s] policies and to consistently communicate, educate and monitor compliance every single day. Compliance with company policies is not subject to personal discretion and is not optional. In addition to ensuring compliance, the approver’s responsibility to monitor and question is a critical factor in effective management of this and all policies.

Noonan sued Staples for defamation based on the content of the email. Even though the contents of the email were truthful, the court, in Noonan v. Staples, Inc. (1st Cir. 2/13/09), still found that Noonan could proceed to trial on his claim because a jury could conclude that the email was sent with what is called “actual malice.” The court focused on three key facts:

1. In his 12 years with Staples, it was the first post-termination email in which the Executive Vice President ever referred to the terminated employee by name.

2. The EVP could have sent the email to cover his own misfeasance in failing to detect widespread expense report abuses.

3. Because many of the employees who received the email did not travel, they had no reason to be advised of the travel policy or its enforcement.

Ohio law grants employers a privilege to make truthful disclosures about an employee’s job performance. Ohio’s statute, however, has an exception for the disclosure of information “with the knowledge that it was false, with the deliberate intent to mislead the prospective employer or another person, in bad faith, or with malicious purpose.” The Noonan case provides insight in how to avoid an inference of a malicious purpose when giving job performance information.

1. Consistency. If your company has a policy or practice in what types of information it discloses, stick to that policy or practice. Giving more than what is customary for your business, even if truthful, could lead one to conclude that some ulterior motive to harm motivated the disclosure of additional information.

2. Narrowness. Information should only be disclosed on a need-to-know basis. If information is sent to people who have no reason to receive it, one could infer a motive to smear one’s reputation, even if the information is truthful.

As PointofLaw.com makes clear, “in the down economy, workplace defamation lawsuits are on the rise.” Being truthful and consistent, in what you say about employees, and narrow in to whom you say it, is the best defense against such a claim.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Defamation liability in internal investigations?

Jackson v. City of Columbus, decided today by the Ohio Supreme Court, illustrates the importance of being thorough in all internal investigations of employee misconduct, and only disclosing the results of such investigations on a need to know basis.

The Mayor of Columbus asked his Columbus Public Safety Director, Thomas Rice, to conduct an internal investigation of his Police Chief, James Jackson, on allegations of police corruption. In June 1997, Rice presented his report of the investigation to the Mayor and released it to the public. In the report was a statement attributed to Keith Lamar Jones, an inmate at the Chillicothe Correctional Institution, which alleged that Jackson had impregnated a juvenile prostitute. A polygraph conducted during the interview of Jones concluded that he was deceptive during the interview but that his statements about the underage prostitute were not entirely invalid. Following the public release of the report, Jackson filed a defamation suit against the City. Both the trial court and the court of appeals found in the City's favor, in that the comment about the juvenile prostitute was subject to a public interest privilege. The Ohio Supreme Court accepted the case on the issue of whether one "commits defamation by publishing the defamatory statements of a third party when the publisher has a high degree of awareness of the probable falsity of those statements.”

Defamation occurs when a publication contains a false statement "made with some degree of fault, reflecting injuriously on a person’s reputation, or exposing a person to public hatred, contempt, ridicule, shame or disgrace, or affecting a person adversely in his or her trade, business or profession." If a plaintiff makes out a defamation case, a respondent may then invoke a conditional or qualified privilege, which must be supported by "good faith, an interest to be upheld, a statement limited in its scope to this purpose, a proper occasion, and publication in a proper manner and to proper parties only." A qualified privilege may be defeated only if a plaintiff proves with convincing clarity that a publisher acted with actual malice. "Actual malice" is defined as "acting with knowledge that the statements are false or acting with reckless disregard as to their truth or falsity." "reckless disregard", in turn, means that a publisher of defamatory statements acts with a "high degree of awareness of their probable falsity," or when the publisher "in fact entertained serious doubts as to the truth of his publication."

The Ohio Supreme Court decided that the City abused its privilege in reporting that Jackson had impregnated a juvenile. First, the City relied solely on the word of a convicted felon with a history of being a liar, and who had a questionable polygraph result. Secondly, and perhaps more importantly, Rice never interviewed Jackson about the allegation. According to Jackson, had he been asked, Rice would have been told that Jackson had a vasectomy and could not have impregnated anyone.

Before you conclude that the Jackson case doesn't apply to your business, consider that it teaches some general lessons on the handling of all internal investigations. Ohio court have held that employers enjoy a qualified privilege to disclose the results of internal investigations. See Lennon v. Cuyahoga Cty. Juvenile Court; Blatnik v. Avery Dennison Corp. When conducting internal investigations into allegations of sexual harassment or other employee misconduct, Jackson highlights a couple of important points.

• Consider your source. Who is providing certain information is as important as the information that is provided. Do not take what a witness says at face value without taking into consideration the witness's credibility. Does the witness have history of truthfulness? Does the witness have something to gain in the outcome, such as a promotion if another employee is terminated? Is the witness biased towards either the victim or accused? These questions are important in determining how much weight to give to a witness's statements, if any at all.
• Only disclose to those who need to know. Confidentiality is key in any internal investigation, even more so if the allegations are as devastating as sex with an underage prostitute. The more widely you disclose the fruits of any investigation, the more you open yourself up to a claim that you have abused the qualified privilege. The best practice is to limit the sphere of knowledge to those who absolutely need to know, and further limit what is told to those who need to know. How much information to disclose and to whom is largely a judgment call, but as a rule of thumb less is better.