Should I Sign a Settlement Agreement with a Confidentiality Clause?

In some litigation cases, the two sides might decide to settle their case for one of many reasons. Frequently, one or both of the parties wants a confidentiality clause included in the settlement agreement. The purpose of a Confidentiality clause is to limit the disclosure of certain parts of the case. Before agreeing to a confidentiality clause, speak to a lawyer in order to understand the different options and consequences.

In a recent case, a wrongfully terminated employee sued his former employer and, per the settlement agreement, was to receive thousands of dollars in back wages, and an additional settlement of $80,000. The settlement agreement included a confidentiality clause, which prohibited the employee from disclosing the terms of the settlement. The employee told his daughter about the settlement, which violated the settlement, and when his daughter posted about it on Facebook, the employer refused to pay the settlement amount, citing violation of settlement agreement. The trial court sided with the employer. Confidentiality clauses are very serious. Agreeing to one and then violating it can result in a loss of the entire settlement.

A few things to remember when deciding whether or not to sign or include a confidentiality clause in your settlement agreement:

1) Is there anything about your case that you would like to keep confidential?

Frequently, defendants are keen to protect the facts of the case from the public eye. It is common to agree to a case settlement chiefly to avoid the bad press involved when taking a case all the way through litigation. You may also be concerned about information from one case will be used to your disadvantage in another case.

2) Is there anything about your case that the other side would like to keep confidential?

Occasionally, you may not be particularly interested in maintaining confidentiality, but you know that the other side is very concerned about keeping the proceedings confidential. By including a confidentiality agreement, you can gain an important bargaining chip that can be utilized to increase the size of the settlement you receive, or decrease the amount of settlement you are required to pay. Either way, it is crucial to be familiar with the pros and cons of signing a confidentiality clause.

3) Could public knowledge of the settlement cause additional lawsuits?

This can be especially vital when the settlement amount is high. If others believe that you are an easy target, or that you have lots of money, they are more likely to try to start a lawsuit of their own, hoping to make off with a high settlement offer. (Because of this risk, many companies include confidentiality clauses in all settlement agreements by default.)

4) Could public knowledge of the settlement discourage additional lawsuits?

This point is most applicable to plaintiffs, but occasionally, litigants really WANT to make an example out of their opponents. For example, if someone who infringes on a patent loses a large settlement to the patent holder, anyone considering infringing on that patent may think twice before proceeding. This can become a crucial tool that a patent holder can utilize to compel other infringers to settle in the patent holders favor, or to dissuade people from infringing on the patent in the first place. You may even decide that you don’t want to include a confidentiality clause at all, but be sure if there is a confidentiality clause, to structure it carefully for your needs and desires.

This is only a rudimentary list of a few basic considerations to take into account before signing a settlement agreement with a confidentiality clause. ALWAYS contact a qualified attorney before signing an agreement of any kind. The Arizona business attorneys at Denton Peterson are experienced in litigating and negotiating settlement terms. For more information, contact us here.

Approved By:

Brad Denton – Denton Peterson, PC

1930 N Arboleda #200
Mesa, AZ 85213

Office: 480-325-9900
Email: [email protected]
Website: dentonpeterson.com