Confidentiality Clauses in Settlement Agreements

It is standard operating procedure, when settling claims of workplace harassment or discrimination for employers, to require the complaining employee to sign a contract agreeing to keep all aspects of the complaint, investigation, and settlement confidential. In over 3 decades of representing both employers and employees in employment disputes, I have only once settled a case without there being a confidentiality clause in the settlement agreement.  I represented the employee in that case, and I was stunned that the employer’s attorney did not demand confidentiality as a condition of settlement.  As a result, that client now is only too happy to tell others about how her former boss sexually harassed her on the job, and then retaliated against her when she reported his misconduct.

Designed to Scare the Employee

Typically, confidentiality clauses in settlement agreements are designed to scare the daylights out of employees who sign them.  The language is usually very broad, seemingly prohibiting the employees even from discussing the matter with their spouse, doctor, psychologist, priest, lawyer, accountant, co-workers, potential future employers, or even government agencies such as the Equal Employment Opportunity Commission.  Additionally, confidentiality clauses often state that if employees are caught breaching confidentiality, they will have to return any money received. The confidentiality clause will sometimes say that if employees breach confidentiality, the employer can sue them to recover actual damages and attorney fees, get an injunction against further disclosures, or both.  In short, confidentiality clauses in settlement agreements are not to be taken lightly by settling employees.

Why do settling employers steadfastly insist upon a confidentiality clause as a condition of settling with an employee who has alleged workplace harassment or discrimination?  It’s simple: to preserve their reputations in the marketplace and to not encourage other employees complaining about workplace harassment or discrimination. This would then require the employer to investigate additional allegations and possibly shell out more money to settle them too.  But is it ethical and should it be legal?  Increasingly, the answer to these questions is NO!

For example,

  • In Nevada, Assembly Bill 248, effective July 1, 2019, prohibits a settlement agreement from containing a confidentiality clause related to discrimination on the basis of sex by an employer.
  • In California, Senate Bill 820, effective January 1, 2019, prohibits a clause in a settlement agreement that prevents the disclosure of factual information relating to certain claims of sexual assault, sexual harassment, or harassment or discrimination based on sex, that are filed in a civil or administrative action.
  • In New Jersey, a 2018/2019 law prohibits employers demanding nondisclosure in agreements settling discrimination cases. But that law may go too far because, in addition to prohibiting use of confidentiality clauses in certain settlement agreements, it prohibits waiver of an employee’s substantive or procedural rights altogether.  Thus, the law eliminates one of the major reasons employers agree to settle employment claims in the first place.  Without a settlement, the employee must choose either between bringing costly litigation or just continuing to suffer the economic and emotional consequences of harassment or discrimination inflicted upon them.

The Key is Negotiation

Question: So what can aggrieved employees do when presented with an employer’s proposed settlement agreement containing a confidentiality clause?  Answer: Negotiate to the extent of the leverage they do have.  “If you don’t ask, you don’t get.”

The employee can attempt to narrow the scope of persons to whom the employee cannot disclose the details of the settlement.  Most employers will readily agree to permitting the employee to make disclosure to the employee’s spouse, doctor, psychologist, priest, lawyer, accountant, and government agencies.  But that usually will not happen unless the settling employee negotiates for such an exclusion.

Similarly, employees may be able to negotiate terms under which they can disclose the circumstances of the termination of their past employment with potential future employers.  For example, the settling employee and employer might agree to specific language the employee may use when asked, “Why did you leave your last job?”

Also, the settling employee can insist in negotiation that any provision for recovery of attorney fees and other litigation costs, in the event of any lawsuit over alleged breach of confidentiality, must be mutual—i.e., that if the employee wins the lawsuit, the employer will pay the employee’s attorney fees and other litigation costs.

Get in touch today!

Scroll to top