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The $80,000 Secret – The Importance of Confidentiality Clauses

Published:  March 4, 2014

When a 69 year old former school headmaster’s contract wasn’t renewed he filed a claim for age discrimination. The school, Gulliver Preparatory School, decided to settle this lawsuit and in the settlement included a confidentiality agreement.

While there are several reasons that may be factored into deciding to settle a lawsuit (cost of trial, affect on reputation of ongoing lawsuit, successful litigation breeding further litigation, etc.), many of those reasons focus on keeping the case away from the public. Therefore, confidentiality clauses are common and a important for all parties in settlement agreements.

These confidentiality agreements are normally more of a deterrent than anything else because enforcement may require the parties to return to court. Nonetheless, to avoid the facts surrounding a case from becoming public knowledge, it is important to have a carefully drafted confidentiality agreement in place. An effective confidentiality clause will make clear specifically what information is confidential, will specify exclusions to the agreement under law, and will state that a breach of confidentiality may void the settlement agreement.

Therefore, when the daughter of the former headmaster whispered about the settlement in her Facebook status, to all of her 1200 “friends,” by writing, “Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.” This started a series of court proceedings leading to “Mama and Papa Snay” not getting any of that money.

The settlement agreement specifically stated that neither Snay nor his wife could mention the settlement to anyone other than attorneys or professional advisors. Therefore, when Snay’s daughter boasted on her Facebook with information she only could have gotten from her parents, she essentially boasted her family out of $80,000. While his daughter wasn’t subject to the settlement and therefore wasn’t bound by it, her Facebook post made it clear that Snay had not kept the settlement confidential as he promised.

Even though the confidentiality agreement in this case was well drafted, the trial court originally intended to enforce the settlement agreement despite Snay’s disclosure to his daughter. While the appeals court ruled that the settlement was voided by this disclosure, this does highlight the importance of having a carefully worded confidentiality clause.

If your company is negotiating a settlement, it would behoove you to consult an attorney to ensure confidentiality will be maintained.

If you have any questions regarding confidentiality agreements, please contact any of the attorneys at Royal LLP at (413) 586-2288.