Fair Resolution Of Business Disputes Is Possible

The Shifting Laws Relating to Non-Disclosure and Confidentiality Provisions in Settlement Agreements

Mediators who work in the employment arena helping to resolve employee claims for discrimination, harassment or retaliation are facing new challenges when it comes to the issue of including standard provisions in their settlement documents that address the confidentiality and non-disclosure of the terms of the agreement.

Typically, an employer’s motivation for reaching a pre-trial settlement with its employee is to avoid the possible public disclosure of the alleged claims against the company or its employees. In fact, the ability to control the public damage of the allegations has oftentimes been a key factor in helping mediators motivate settlement.

Under new laws, found in states like California, New York and others, settlement agreements containing these confidentiality and non-disclosure provisions may be considered unenforceable. Due to public pressure to expose wrongdoers and limit their misconduct, state legislators have been amending their state laws to restrict these provisions in settlement agreements. Public opinion would suggest that such provisions may allow companies and their employers to hide their bad behavior, which otherwise would be exposed if these confidentiality and non-disclosure clauses were eliminated.

Certainly the “MeToo” movement catapulted this issue into the limelight when it was discovered that a long history of harassment may have occurred in certain companies all while being shielded from discovery through non-disclosure provisions that had been signed by employees who resolved their claims through mediation.

The difficulty with removing these provisions is that sometimes the only true incentive for an employer to settle with its claimants is exactly to help avoid the public spectacle of the disclosed claim. Employers typically will seek to avoid the negative publicity and impact to their company’s goodwill that come with the public’s knowledge of a company’s internal disputes.  Even more so, sometimes the complainant may not want the matter publicly disclosed, seeking to hide the issues from their families or the public. Some of these laws may take the right of anonymity away from the claimants themselves.

Further, federal tax Legislation has been added that prevents any tax deductions on any settlements for sexual harassment that include confidentiality provisions. Previously, a company could deduct such settlement payments as a business deduction. Under the new law if the parties include a confidentiality provision neither the employer nor the claimant can deduct their payments and costs as a deductible expense. The goal was clearly to motivate parties involved in sexual harassment claims to disclose their disputes and avoid ongoing secret settlements

Of course, mediators can help both sides in a dispute manage these pressures of the public’s right to know and the personal interests of the parties involved. Mediators can work with the parties to consider alternative strategies such as permitting disclosure only by subpoena or other court action and not simply in response to media inquiry. Another approach would be to permit disclosure only if both parties are notified so as to allow each side the opportunity to present their side of the story. Lastly, mediators can work with the parties to agree to shift certain settlement amounts to other non-harassment areas (such as wage and hour claims or discrimination) which can be disclosed and therefore allowing the parties to take advantage of their expense deductions.

Ultimately, mediation is meant to allow the parties to control their circumstances and avoid the public scrutiny of litigation. Through mediation, the parties should also be able to maintain their control over the settlement process while still complying with existing law.

Depending on the state involved the parties and the mediator should explore all alternatives and options available to them to help motivate the parties to reach a resolution if that what the parties want and to do it in such a way to meet the public policy and legal requirements not to hide facts that may damage others involved. Each state’s laws will undoubtedly be slightly different, even the New York law appears to allow a claimant to agree to a confidentiality provision in their settlement, at their option. Certainly, the laws should not be written in a way to punish claimants that want to avoid the potential embarrassment involved in these types of harassment disputes.

For thirty years, Scott Zucker has acted as outside legal counsel to a variety of privately held and publicly traded businesses involved in multiple industries. His legal services have ranged from employment, real estate, construction and corporate consulting to representation of companies in the litigation of their financial and business disputes. Scott’s goal is to utilize his legal and business experience to foster the use of Alternative Dispute Resolution to help parties reach resolutions without the time, effort and cost of court litigation. Scott can be reached at [email protected] or 404-364-4626.