Within the context of efforts to settle a tort claim, such as an employment discrimiation claim or personal injury lawsuit, the defendant, and at times even the plaintiff, may request that the settlement be confidential. When a settlement is confidential, the nature, terms, and amount of the settlement must be kept secret by the parties to the litigation.
A confidentiality agreement will usually be requested by a defendant.
- The defendant may want to be able to publicly deny wrongdoing, and may be concerned that a large settlement will overshadow any protestations of innocence.
- The defendant may wish to avoid creating a precedent which might inspire other potential plaintiffs to make similar claims in the hope of achieving a similar settlement.
- A celebrity defendant might fear that lawsuits based upon false accusations might follow from public knowledge of a substantial settlement, or may hope that a confidentiality agreement will help facilitate recovery from career damage caused by high profile litigation.
Occasionally, a plaintiff will desire that a settlement be confidential. For example,
- A plaintiff may be concerned that a small settlement will suggest to the public that the suit had little to no merit.
- A plaintiff may also agree to confidentiality in order to secure admissions of wrongdoing from the defendant, which the defendant might be unwilling to make in any public document or setting.
In some situations, agreeing to a confidential settlement will allow a plaintiff to resolve a claim or lawsuit more quickly than through public litigation, and potentially receive a larger offer of settlement from the defendant due to the promise of confidentiality.
There are strong arguments against confidentiality agreements for injury settlements. Perhaps the strongest is that confidential settlements enable a defendant to maintain a veil of secrecy about facts which might improve the safety of the general public. For example, the manufacturer of a dangerous product might engage in dozens or hundreds of confidential settlements with plaintiffs, while if the injuries and settlements were publicly known it might be forced to make its product less dangerous or to remove the product from the market.
A manufacturer might respond that most or all of the injury claims made in relation to a given product are without merit, and that public disclosure of its settlements might encourage additional baseless claims against it. Also, if the amounts of its settlements were known, plaintiffs would attempt to secure settlements based upon the highest known prior settlement, whereas if settlement amounts are confidential the manufacturer may be able to save a lot of money in settling subsequent claims.
Some states have passed laws that restrict confidential settlements. For example, some states, including Florida, Louisiana and Washington, have passed laws that hold invalid confidential settlement agreements that conceal dangers to public health or safety. Several states are considering legislation that will invalidate confidentiality agreements in cases that involve sexual harassment, sexual abuse or acts of discrimination.
Due to the process by which class action settlements must be approved by the court, it is not possible to negotiate a confidential settlement in a federal class action lawsuit.
A plaintiff should be aware of, and should be comfortable with, any provisions which might subject the plaintiff to penalty in the event of disclosure. Any confidentiality agreement should be reviewed by the plaintiff's lawyer.
When agreeing to a confidential settlement, the plaintiff must carefully read and consider any language in the settlement agreement that imposes a penalty or voids the settlement in the event of disclosure. Any such language should relate only to disclosures which are the fault of the plaintiff, and not to disclosures beyond the plaintiff's control.
The failure of the plaintiff's lawyer to properly safeguard the file, an understandable mistake, or disclosure as the result of a burglary, for example, should not automatically create an obligation that the plaintiff return the settlement funds to the defendant. Similarly, a court-ordered disclosure of the settlement terms should not result in any sanction upon the plaintiff.