Confidentiality agreements are typically proposed by the party being sued. Sometimes these binding contracts are for good reason and are deemed tolerable. However, with other legal matters these documents can be used to cover up wrongdoings and public knowledge involving catastrophic events.
A confidentiality clause seeks to prohibit the parties to a settlement from disclosing the settlement terms and sometimes more. Meaning, neither parties are permitted to share any information related to the case. Both sides are restricted from speaking on the matter, including individuals who have no involvement in the court proceedings or participation in the suit. Such provisions can require penalties such as payback of settlement if the settlement is disclosed or the agreement is broken.
Benefits Of Confidentiality Agreements
Confidentiality is not always a bad thing. There are benefits to the litigation system in some ways, including:
- All consultations between attorneys and their clients are understood to be confidential
- Cases such as avoiding exposure to industry or trade secrets. Contracts are necessary when protecting companies from their competitors preventing private information from being uncovered and later used to undermine them
- Enterprises that require potential hires to sign one as a condition of employment. This protects the companies’ private information from leaking outside the workplace and winding up in the wrong hands.
While the use of pre-employment contracts and protecting industry policy is pretty straight forward, non-disclosure agreements connected to civil- lawsuits arise many more complex issues. Which is why many people will need the help of an experienced personal injury attorney to make sure signing any binding document is in best interests of themselves and the public.
Reasons Why Defendants Request Non-Disclosure Agreements
- To avoid attracting additional lawsuits
- Protect their name or public image from being tarnished by a lawsuit
- Prevents the public from knowing any wrongful conduct
Why would a company need to protect their image or cover up an incident? The following summarizes a recent article explaining a defective product and how it put one couple in immediate danger:
Recently, a Pennsylvanian resident was enjoying a Sunday afternoon drive when his 2013 Tesla Model S electric car left front wheel just detached from the car. When Tesla picked up his car, Mr. Cordaro was first told he would have to pay for the repairs because they were from normal wear. After pressing his case with a Tesla manager, he was told the company would pay for partial costs as long as he signed a non-disclosure agreement.
When the news broke loose of the non-disclosure contract, the company stated the documents were only set in place to protect their selves from potential lawsuits after performing the repairs at a discounted rate. However, concerns were raised that these disclosures could prevent owners from reporting safety problems to the National Highway Traffic Administration, which called Telsa’s use of agreement “troublesome.”
David Valedeck, a law professor at Georgetown University, stated it seemed Tesla was proposing these confidentiality agreements by protecting the car company from admitting any wrongdoing by way of making a repair. Also, two other provisions in the contract were concerning and seemed to muzzle consumers:
- Asking car owners to waive the right to future legal action
- To keep the entire incident confidential
Confidentiality Agreements Holds the Justice System in a Tough Spot
While defendants remain persistent on keeping a settlement confidential, demanding that a lawyer also abides non-disclosure questions ethical dilemmas. If a lawyer cannot advise current and future clients with proper factual details (such as comparing a fair and reasonable value to other known cases), this strongly interferes with the lawyer’s duty to fully and justly represent the client.
Furthermore, the court system is rightfully opened to the public. If secrecy is kept in lawsuits than how can the public observe and understand what is going on and how the courts protect everyone by the fair administration of justice? Confidentiality seems to protect repeat offenders and harms everyone else.
Beware of Taxation
A confidentiality clause may be rightfully taxable if not drafted carefully. The U.S. Tax Court has made it clear that a confidentiality clause must clearly state how much of the payment is consideration to the clause.
Meaning, once you reach a settlement in a lawsuit and a confidentiality and non- disparagement clause is added in the settlement, the agreement must clearly state the amount from the total settlement that is consideration to the clause. If no number is stated than the Internal Revenue Service (IRS) can assign any “just or fair amount” as the amount of consideration, leaving you with a much lesser settlement.
Signing a Non-Disclosure Agreement
When deciding if a confidentiality agreement is appropriate, the key is to analyze carefully the details stated in the confidentiality information.
Be wary when a defendant tries to lay out a broad framework of what is to be considered confidential information, such as specific details and description of the entire dispute. This leaves too much of an open window for violations of confidentiality or other future legal proceedings.
Generally speaking, the breadth of confidentiality in a settlement should be clearly laid out, and drawn as narrowly as possible. This way the rights of both the defendant and plaintiff is protected.
Remember, once the terms of a settlement have been agreed upon, they can not be altered except by mutual agreement. Difficulties can arise after a written settlement agreement is written up. If confidentiality was not mentioned before coming to terms, it could not be forced into the settlement later by an objecting party.
With there being obvious reasons to seek legal counsel when dealing with non-disclosure contracts involving lawsuits, these are just a few of the basics. Defendants additionally try to add a liquidated damages clause in the agreement. This can also hurt the Plaintiff due to the IRS deeming the liquidated damage amount as clear evidence of the value of confidentiality and proof of the amount of taxable income in the settlement.Provides Exceptional Legal Help Throughout Georgia
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