Photo illustration: C.J. Burton for Newsweek

By Anna Kuchment

March 10, 2008 issue

Last year Sam Chapman banned gossip at his small Chicago firm. “Since we put the regime in place, it’s changed everything,” says Chapman, CEO of Empower Public Relations. Each of the company’s 17 employees has agreed that when an employee says something negative behind a co-worker’s back, he or she will be required to repeat that gossip to the person’s face. As a result, one person who was seen as unproductive got the chance to explain she had negotiated reduced hours because she was still in school. Another was rumored to be dating someone at the office but revealed she had recently become engaged to someone else. “When you clean up the stories, you find that more than half of them are untrue,” says Chapman, who credits the policy with helping to double his firm’s business; workers, he says, are less distracted, more efficient and communicate better with one another.

Chapman’s policy offers a drastic solution to a common workplace problem. A recent survey by the staffing firm Randstad USA found that 60 percent of employees named gossip as their No. 1 pet peeve at work. As the economy sours, problems with office gossip may well increase. “Sometimes people deal with anxiety over layoffs by focusing on others and not getting along with them,” says Fran Furman, director of a large employee-assistance program run out of St. Vincent’s Hospital Manhattan, who has already seen an uptick in complaints related to the office rumor mill.

Not all gossip is bad. “Our brains are hardwired for social intelligence—thinking and talking about the intentions and character of the other people in our groups,” says Michael Morris, a professor at Columbia University’s psychology department and Graduate School of Business. Employees use it to bond and to glean valuable information they can’t access through official channels. And, of course, it’s entertaining. “We can get a good laugh, we can feel superior to people, we can feel like we’re in the know, like we’re one of the cool kids,” says Fortune 500 executive coach Peggy Klaus, author of “The Hard Truth About Soft Skills.” Here’s how to navigate your company’s rumor mill and use it to your advantage.

Separate the good from the bad. Kate Wendleton, president of the Five O’Clock Club, a national career-counseling organization, says it’s important to differentiate between constructive and destructive gossip. Constructive gossip can include venting about clients and the boss, because it can help employees tolerate people’s differences and learn how to better handle them. “The less powerful need to exchange information about the more powerful; it’s a way of protecting each other,” she says.

Learn to deflect. When confronted with destructive gossip, Klaus recommends responding in as neutral a manner as possible. If you hear, “Don’t you think Patricia screwed up her presentation?” try suggesting a charitable explanation for her off day. Or say you hadn’t noticed. “I think acting dumb can be a really good thing,” says Klaus.

Set a time limit. If layoff rumors have gripped your company, it’s impossible—even possibly counterproductive—not to trade information with colleagues. But limit the amount of time you spend speculating about who’s getting the ax. “Identify one reliable person to check in with for a few minutes once a week,” says Klaus. “Then put your energy where it’s best used.” Instead of rumormongering your way into a state of paralysis, spend your time being extra-productive and planning ways of letting the boss know you’re worth keeping.

Don’t overshare. To avoid becoming the subject of gossip, select your friends carefully—especially when you’re a new hire. “Choose people who are calm and generous and kind, not hateful or hostile,” says Wendleton. Limit your number of confidants. “Don’t look to your workplace as your only source of friendship,” she says. Always be careful of sharing too much personal information—if everyone finds out your boyfriend’s in rehab, that’s your own fault.

Never gossip by e-mail. You can leave yourself vulnerable to a libel suit. “You’re creating a paper trail of evidence for someone to use against you,” says Tarun Mehta, an attorney at Bryan Cave in Kansas City, Mo. In slander (oral) cases, the burden falls on the plaintiff to prove the damages. But in most libel (written) cases, damages are presumed. So, think before you gossip—at the water cooler or at your keyboard.