Most banks are on the hunt for ways to save money, but asking employees you are canning to be on call for free is probably pushing it.
SunTrust was accused of making such an audacious request by former IT employees who recently lost their jobs to outsourcing. After a media backlash, the Atlanta company said it has completely removed the "cooperation clause" from its severance agreement.
This week, Computerworld reported that the $187 billion-asset banking company had laid off 100 employees who worked in the information technology division and planned to offshore their functions, but included a clause in the severance agreement that called for the laid-off employees to be "reasonably available" to SunTrust should the company need to call on them about something they did while there. The kicker was a sentence that says the employees may not be compensated for their time.
The debacle results from the collision of two of the banking industry's strongest forces today. Banks are under considerable pressure to cut costs to provide shareholders with earnings growth in the absence of top line growth. At the same time, when regulators have questions they want them answered, stat, and sometimes former employees may be the only ones who know where the proverbial bodies are buried.
In an emailed statement to American Banker on Friday, a SunTrust spokesman said the clause had been "misconstrued versus its use in actual practice, and therefore, we have removed it."
"It is a rare occasion when we need to call a former employee. The 'continuing cooperation' clause was designed for an unexpected scenario where we would need knowledge from a former employee, primarily related to regulatory or legal matters," the statement reads. "SunTrust has never used this provision to require a former employee to be 'on call' or to help conduct day-to-day business in any way."
Still, other bankers didn't come to SunTrust's defense of trying to keep laid-off employees nearby. Several say the loss of institutional knowledge is the price of outsourcing.
"I understand the 'want' to have the historical information maintained that will walk out the door with a layoff but isn't that one of the factors that you should consider before you lay off that individual?" said Bill J. Callaghan, chief information officer of $1 billion-asset Xenith Bankshares in Richmond, Va, in an email.
Callaghan said he considers offshoring a "very narrow-minded and a short-sighted strategy" anyway. "Yes, your hourly costs are much less for skilled labor but they don't know your business, don't know your customers and probably don't care about your business."
Others were somewhat more accepting of the idea of being able to reach out to the employee, but not without compensation.
"If you terminate an employee even with severance they should be compensated for their time if the company seeks their assistance after that employee has left the company," said Todd Kuehnast, senior vice president of technology at the $563 million-asset Alliance Bank in Lake City, Minn.
Kuehnast added that he too is no fan of outsourcing. "Sometimes you get what you pay for, so this could end up costing SunTrust more in the end if the level of expertise isn't there with their offshoring company."
Such clauses are not unusual for executive roles, but seemed out of place for IT employees, several observers say.
"It could be viewed as a bit heavy-handed for a line-level person," said Lawrence Kaplan, a lawyer at Paul Hastings. "These aren't the people likely to be deposed by regulators."
Still, Kaplan said the clause was not that out of the ordinary.
"The bottom line is that when you give someone severance it is not uncommon to have a bunch of covenants. Are they being asked to work for two years? No, I don't think so. They are saying, 'if something comes up and you were the person who worked on it, we may need you.' It is not uncommon to say 'we might need to talk to you,'" Kaplan said.
"The key word here is 'reasonable.' Are you going to be called in to recreate a database? That likely isn't reasonable."