Can You Keep a Secret? Confidentiality Clauses in Settlement Agreements Are For Real
If a party to a confidential settlement agreement blabs about the settlement, could the party lose some of the benefits of the settlement? A recent Florida appellate decision is a good reminder to think carefully about the confidentiality clauses in your settlement agreements both before—and after—you settle your case. (Look for some best practices at the end of the post.) In Gulliver Schools v. Snay, a former headmaster of a Florida prep school filed suit against the school, alleging age discrimination and retaliation, when the school did not renew his contract. Snay settled his case for $10,000 in backpay, an additional $80,000 payment, and $60,000 in attorney’s fees. The settlement agreement included the following “detailed” confidentiality provision:
13. Confidentiality. . . . [T]he plaintiff shall not either directly or indirectly, disclose, discuss or communicate to any entity or person, except his attorneys or other professional advisors or spouse any information whatsoever regarding the existence or terms of his Agreement. . . . A breach . . . will result in disgorgement of the Plaintiff’s portion of the settlement Payments.Snay and his wife decided they needed to tell their daughter something–so they told her only that the case was settled and that they were happy with the result. Snay’s daughter added a little embellishment to the announcement and posted it on Facebook, saying “Mama and Papa Snay won the case against Gulliver. Guliver is now officially paying for my vacation to Europe this summer. SUCK IT.” The post went out to 1200 of the daughter’s closest “friends,” many of whom were current or past Gulliver students.
Just four days after the agreement was signed, the school notified Snay that he had breached the agreement based on his daughter’s Facebook post. Snay filed a motion to enforce the settlement agreement. The trial court initially ruled in favor of Snay, but the appellate court sided with the school. The appellate court held that Snay had done exactly what he promised not to do and what the confidentiality provision was designed to prevent—advertising to the school community that Snay had been successful in his suit against the school. The result? Forfeiture of $80,000. No North Carolina cases appear to address directly remedies for a breach of a confidentiality provision, but the North Carolina courts do apply general contract principles to settlement agreements. Therefore, there is a good chance the result in Snay would have been the same under North Carolina law—if the settlement agreement expressly stated the parties’ intent for disgorgement of a portion of the settlement proceeds upon disclosure of the “existence” of the agreement.
What lessons are there to learn from Snay? Well, the obvious one is not to boast about a settlement on Facebook. And it’s unclear what the parents could have communicated to their daughter about the case – the language in question specifically says you can’t even mention the existence of the settlement. So, to be realistic, but for the Facebook post, this was a non-issue. In the context of commercial litigation, here are some thoughts about best practices:
- Don’t wait to think about confidentiality until the last minute before the settlement or ignore a confidentiality provision afterwards.
- Decide in advance of mediation whether you want the settlement to be confidential and make that clear from the outset in negotiations.
- Decide whether you want to keep confidential the settlement amount, all terms of the settlement, or the “existence” of the settlement itself? (Though it’s not clear how practical that last option is if a public lawsuit has already been filed.) Consider providing a script for how the parties will respond when asked about the settlement (e.g., “We have no comment other than to state that the matter has been resolved to the satisfaction of both parties.”).
- If you want the confidentiality provision to have “teeth,” consider stating explicitly, as the parties did in Snay, what the penalty will be for a violation. If you want the provision to be enforceable by specific performance (i.e., a court-ordered injunction) or an option to void the agreement, say so.
- Include your confidentiality provision in any term sheet at mediation. A confidentiality agreement is a material term in North Carolina that requires a meeting of the minds. It cannot be added or implied after the parties reduce their agreement to writing.
- Pay attention to the scope of the confidentiality provision (i.e., what is permitted and what is not) and the potential penalties for a violation.
- If you include a confidentiality provision, abide by it.