Is a confidentiality provision in an employee settlement agreement worth the paper it’s printed on?

A reader emailed me yesterday.

Hey Eric, Clients are wondering about value of settlement NDAs after ex-Fox News HWE victims go public despite contracts. Your reaction?

Wait! You mean employees actually violate confidentiality provisions?

I know, right?

By way of brief background, in late July, New York ran a story by Gabriel Sherman, suggesting a recent high-profile example. That is, two female Fox employees were allegedly sexually harassed by former Fox News boss, Roger Ailes. The Sherman story includes details of a 2011 settlement agreement between the women and Fox. An agreement that supposedly included “extensive nondisclosure provisions.”

Now, before I react to the reader question, I remind everyone of the standard disclaimer.

My initial reaction was shock. Specifically, I was shocked to learn that: (a) someone other than my father reads this blog; and (b) someone other than my father would take the time to email me about the blog. And, once the shock subsided, I was like…

[Ok, before I really react, I’m going to ignore the National Labor Relations Act and other EEO/anti-retaliation considerations here. I’m assuming that they do not exist. I’m also assuming that most employees do abide by non-disclosure provisions. I’m not that cynical. Not on Thursdays, at least.]

For me, the answer is easy: if you want a non-disclosure provision to have value, then assign it some value. I’m not talking about that boilerplate language about how confidentiality is a material term of the agreement. It doesn’t hurt to have that language, but, it’s not going to dissuade someone who wants to share the terms of the agreement from actually sharing them.

No, you need something with real teeth. I’m a believer that the mere specter of financial loss is enough to deter someone from talking.

But, ok. How much loss? And will it be enforceable?

One option is to provide that an employee who breaches confidentiality must pay actual damages to the employer, including the attorney’s fees and costs incurred in enforcing the settlement agreement. Courts regularly enforce these “actual damages” provisions. But, good luck demonstrating actual damages. Most times, the juice won’t be worth the squeeze. But, I’ve never sought enforcement of one of these.

Another option is a liquidated damages provision. Here in Pennsylvania, you can assess liquidated damages where actual loss is hard to calculate and the liquidated damages amount is a reasonable estimate of damages. From my ERISA days, twenty percent of the settlement amount sounds about right. And, the nice thing about twenty percent is that, rarely, does the employee balk at the provision. But, I’ve never sought enforcement of one of these.

Yet another option I’ve seen (and used from time to time) is a more draconian provision requiring repayment of the entire settlement sum (including any share paid to the employee’s lawyer) less $500. This provision is all about flexing enough muscle to discourage an employee from testing it. Of course, it comes with enforcement risks (it screams “unreasonable.”) Thus, this is not a provision I’d employ with a large settlement sum. However, in a smaller settlement, I wouldn’t hesitate to recommend it knowing the opportunity cost to the employee, which would include paying an attorney to defend. But, I’ve never sought enforcement of one of these.

Ultimately, my evidence here is all anecdotal. That is, rarely am I presented with hard facts to support a non-disclosure breach. And, then, there’s the prospect of throwing good money after bad to enforce. Plus, I’ve never sought enforcement.

I’d like to hear from you.

Since I don’t really have a great answer, email me and let me know how you have navigated confidentiality provisions in employment-related settlement agreements.

Update (8/11/16 9:31 AM; following a reader email): KHAAAAAAAAAAAAAAAAAAAAAAAAAAAAN!




“Doing What’s Right – Not Just What’s Legal”