Hush Hush: The Secrecy Behind Confidentiality Clauses in Settlement Agreements

     Many non-lawyers would likely be surprised to know that less than 10% of cases actually make it all the way to trial.  With a growing trend toward more out-of-court settlements, many clients ask about the meaning and implications of a "confidentiality clause."  A confidentiality clause is basically a provision written into many settlement agreements that is designed to keep the terms of the settlement confidential so that only the litigants and their attorneys are privy to the details.

     In many instances, it is the "losing" party, usually the defendant, who bargains for the inclusion of a confidentiality clause in the settlement.  The scope of a confidentiality clause can vary though and its breadth is determined by the language in the settlement agreement itself.  Depending on the motivation behind a party's request that the settlement agreement contain a confidentiality clause in the first place, and the relative bargaining power of the parties during negotiations, the impact of a confidentiality provision can be either quite restrictive or have very little practical effect.

     By keeping the details of the settlement private, the goal is often to prevent additional harm to one's reputation by minimizing any bad publicity that might accompany a "bad" result.  The defendant's basic fear is that if the general public learns that Defendant X paid Plaintiff Y a certain sum of money to settle a case before trial (as a result of Defendant X's unfair and deceptive trade practices (or fraud, or breach of contract, or any number of other civil actions), the public may conclude that Defendant X did in fact commit some wrongdoing, and that the amount of the payout to Plaintiff Y is directly correlated to the severity of Defendant X's offense.

     Defendants also have an interest in keeping a settlement private when there are multiple plaintiffs suing the same defendant under similar theories or for the same action.  For example, let's assume that Plaintiff Y is a passenger on a bus who was injured when Defendant X, a drunken truck driver, negligently hit the bus in a head-on collision and are also suing Defendant X, the other plaintiffs may learn that Defendant X paid Plaintiff Y $500,000.00 to settle the case before trial if there is no confidentiality clause in the settlement agreement.  Such a settlement may lead other plaintiffs to pursue their case against Defendant X in hopes that they too will receive a significant payment for their injuries.

     While a plaintiff may want to spread the news of the settlement's terms, his or her interest in receiving a favorable outcome usually outweighs any desire to publicize the result.  If a defendant is unwavering in its request for a confidentiality clause, seldom will a plaintiff let a promising deal fall through for want of bragging rights.

     We hope that the above will help you better understand the secrecy, or lack thereof, surrounding confidentiality clauses.  Our attorneys have a tremendous amount of experience in settlement negotiations and we are prepared to offer you the advice you need if you find yourself in settlement talks.