Silence is Golden : Confidentiality Agreements

You’ve almost certainly read about the girl who cost her father an $80,000 settlement by posting about it on Facebook.  If you’ve been living under a rock, here’s the short version:

The plaintiff reached an $80,000 settlement for alleged age discrimination with his former employer, but before the settlement is paid, his daughter posts “Mama and Papa Snay won the case against Gulliver.  Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”  When the employer found out, it refused to pay the settlement, and the court agreed.

This case provides a good example to employers, or any defendant for that matter, why they should include confidentiality clauses in settlement agreements.  After all, one of the main purposes behind many settlement agreements is a desire to avoid bad publicity and encouraging other potential plaintiffs from filing suit as well.  And, as the above case shows, social media and the internet make it easier than ever for plaintiffs and others to share information that you would rather be kept quiet.

Confidentiality clauses can vary from somewhat restrictive to extremely restrictive depending upon the situation leading up to the settlement agreement and the needs of the defendant.  In many cases, it is sufficient for the confidentiality clause to prohibit the plaintiff from discussing the terms of the settlement and the events leading up to the settlement.  Particularly if you are afraid that others may bring similar claims if the plaintiff is successful, a confidentiality clause is a must-have.  You certainly don’t want to encourage others to sue you.

Now, the real reason you’ve kept reading: what can you include in your settlement agreement to prevent the plaintiff (or his or her over-sharing children) from blabbing about the agreement all over town and the internet?  First, and foremost, the confidentiality clause should allow your company to deny payment, if the disclosure occurs before payment, or require repayment, if the disclosure occurs after payment.

Second, because it is very difficult to prove the damages that your business sustained as a result of the disclosure, you should include a liquidated damages clause.  A liquidated damages clause effectively sets the damages you’re entitled to prior the breach, and removes the difficult requirement of proving actual damages to your business.

Finally, you should include a provision allowing you to recover attorney’s fees from the plaintiff if you are required to take legal action.  After all, lawsuits are not cheap and you shouldn’t be forced to bear the cost of recovering when the plaintiff breaches your agreement.

If your business is settling a lawsuit, whether it is employment law-related or not, you should insist on a confidentiality clause and punitive clauses that will sufficiently discourage the plaintiff from sharing anything about both events leading to the lawsuit and the terms of the settlement itself.