A cautionary tale about confidentiality clauses in settlement agreements

When an employee is handed a proposed severance agreement from an employer, many of the provisions, including the confidentiality or nondisclosure provisions, will be drafted so that the employee is barred from speaking or acting, but the employer is not necessarily.

A typical confidentiality or nondisclosure provision drafted by an employer looks like the following:

"Employee agrees that the terms, amount and other facts concerning this Agreement shall be confidential. Employee agrees not to disclose any information relating to this Agreement to any third parties, including but not limited to the media or other current or past employees of Company. Employee may disclose information relating to this Agreement to Employee's spouse, accountants and attorneys, and to others if required by law, provided, however, that Employee must advise any such third party to whom disclosure is made that the information is confidential and that the party is not to repeat or disclose the information."

One piece of advocacy that employees' attorneys often do is to ensure that the confidentiality clause is made mutual. In other words, the employee agrees not to disclose the existence of the agreement and its underlying facts and the employer does, too. This can be important for those times when it is in the employee's interest for the agreement -- or the underlying fact that the employee hired a lawyer to take on her employer -- to remain confidential.

Employers generally are going to want a confidentiality clause as part of any agreement to settle a case. They generally do not want it to be known they settled a case. They do not want to appear to admit to any possibly illegal behavior. They do not want it known that they have paid money to end or offset litigation.

It is important for employees who sign a settlement agreement with a confidentiality provision in it, however, to thoroughly understand the meaning of the language and the potential ramifications of a breach. One case out of Florida provides a sad example of an employee's breach where, no doubt, the employee thought the disclosure was harmless.

The Third District Court of Appeal in Florida explained what happened:

When [employer] Gulliver did not renew [employee] Snay’s 2010-2011 contract as the school’s headmaster, Snay filed a two count complaint asserting causes of action for age discrimination and retaliation under the Florida Civil Rights Act. On November 3, 2011, the parties executed a general release and a settlement agreement for full and final settlement of Snay’s claims...

Central to this agreement was a detailed confidentiality provision, which provided that the existence and terms of the agreement between Snay and the school were to be kept strictly confidential and that should Snay or his wife breach the confidentiality provision, a portion of the settlement proceeds [ ] would be disgorged....

Within days of Snay signing the settlement agreement, his college-aged daughter posted on Facebook the following:

Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.

The employer immediately notified Snay that he was in breach of the confidentiality clause in the agreement due to his daughter's Facebook post, and further, that it would not be paying the employee his payment due to the breach.

The employee went back to court and filed a motion to enforce the settlement agreement, arguing that the confidentiality clause had not been breached. The Snay family were deposed, and a hearing took place to determine whether there had been a breach. The trial court entered an order finding that neither Snay’s comments to his daughter nor his daughter’s Facebook comments constituted a breach of the confidentiality agreement.

The employer appealed, however, and the Florida appeals court reversed, concluding that the plain language of the agreement indicated that "neither Snay nor his wife would 'either directly or indirectly' disclose to anyone (other than their lawyers or other professionals) 'any information' regarding the existence or the terms of the parties’ agreement." That included the daughter. The court further concluded, "[t]he fact that Snay testified that he knew he needed to tell his daughter something did not excuse this breach."

As mentioned above, this is a sad case. The dad testified that the daughter had been:

an intricate part of what was happening. She was retaliated against at Gulliver. So she knew we were going to some sort of mediation. She was very concerned about it. Because of what happened at Gulliver, she had quite a few psychological scars which forced me to put her into therapy.... We understood the confidentiality. So we knew what the restrictions were, yet we needed to tell her something.

He no doubt thought the limited disclosure to his own daughter was justified and harmless. But it didn't end there. The daughter disclosed it to her 1,200 Facebook friends, and the employer in turn withheld the payment due to the breach and ultimately won in their position that the disclosure was a breach.

This serves as a cautionary tale. Even if you think disclosure to one person will be harmless, you never know what can happen with the information once it is out. You never know who they are going to tell -- or what they are going to post online.

Doorways Employment Law specializes in employment law counseling, strategic advice and representation to individuals and businesses across Massachusetts, including on employment contracts, settlement agreements and severance agreements. Contact Doorway Employment Law for an employment law consultation.