How A Confidentiality Agreement Can Hurt Your Personal Injury Lawsuit

Confidentiality agreements are typically proposed by the party being sued. Sometimes these binding contracts are for a 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 party is 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 suit’s court proceedings or participation.

Such provisions can require penalties such as payback of settlement if the settlement is disclosed or the agreement is broken.

In the article below, we will talk about how confidentiality agreements can be harmful.


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Benefits Of Confidentiality Agreements

Confidentiality is not always a bad thing. There are benefits of confidentiality clauses in the litigation system in some ways, including:

  • All consultations between attorneys and their clients are understood to be confidential.
  • Circumstances 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 require potential hires to sign one as a condition of employment, protecting 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 straightforward, non-disclosure agreements connected to civil- lawsuits arise many more complex issues.

This is why many people will need the help of an experienced personal injury attorney to make sure signing any binding document is in the 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.
  • To prevent the public from knowing any wrongful conduct.

Why would a company need to protect its 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 simply detached from the car.

When Tesla picked up his car, Mr. Cordaro was 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 of the non-disclosure contract, the company stated the documents were only in place to protect themselves 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 that Tesla was proposing these confidentiality agreements to protect the car company from admitting any wrongdoing through repairs.

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.
  • Keeping the entire incident confidential.

Confidentiality Agreements Hold the Justice System in a Tough Spot

While defendants remain persistent in keeping a settlement confidential, demanding that a lawyer abides, 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), it 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 lawsuits are kept secret, how can the public observe and understand 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 considered to the clause.

Meaning, once you settle a lawsuit and a confidentiality clause or non-disparagement clause is added in the settlement, the agreement must clearly state the total settlement’s amount considered in the clause.

If no number is stated, 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 a 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 extent 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 are protected.

Remember, once the terms of a settlement are 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.

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There are 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 because the IRS deems the liquidated damage amount as clear evidence of the value of confidentiality and proof of the amount of taxable income in the settlement.

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