Over the last few years, Bill O’Reilly was the subject of at least five claims of sexual harassment that reached a supposed confidential settlement. The settlements occurred before litigation and before there were any public filings at the local courthouse. It was not until 2017 that the series of settlements were reported in the news media, which ultimately resulted in his separation from Fox News.
Every lawyer knows that settlement agreements frequently include such a confidentiality clause. These provisions typically prevent the parties from disclosing the settlement amount to anyone outside of their legal counsel, accountants, financial planners and immediate family. Occasionally, these confidentiality clauses go further and attempt to restrict the parties from discussing the case, and precluding attorneys from further representation based upon information learned in that case.
Two landmines present danger to the parties and legal counsel when using broad confidential settlement agreements.
The first landmine: hiding wrongful conduct. Secrecy in settlement may be an attempt to illegally hide wrongful conduct. There are a number of situations in which the law frowns upon the use of confidentiality in a settlement agreement. For example, a broker-dealer may require confidentiality of a settlement with a customer which prevents disclosure from financial regulators. FINRA has cautioned firms about the use of provisions in settlement agreements with customers that have the potential to impede FINRA investigations and the prosecution of regulatory enforcement actions. See FINRA Notice to Members 14-40. Those regulators want to know about a possible bad apple before someone else is harmed. By entering into such confidential provisions, the broker dealer will be subject to regulatory action for trying to cover up. Likewise, some courts have held that the Fair Labor Standards Act litigation should not include a confidentiality provision because it would undermine regulatory efforts. Lynn’s Food Stores v. United States, 679 F.2d 1350 (11th Cir. 1982).
The second landmine: ethical violations. There are a number of advisory opinions that prohibit attorneys from entering into broad confidentiality agreements in certain circumstances. Rule 5.6 of the Rules of Professional Conduct prohibits lawyers from entering into settlement agreements that will prevent them from being able to accept future clients against the same defendant. That rule provides: “a lawyer shall not participate in offering or making an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a controversy between private parties.†The American Bar Association issued a formal opinion noting that attempts to prevent an attorney from taking on future similar cases, or using certain information, would be unethical because it may materially limit representation of the future client. In Oregon, two lawyers were suspended for entering into an agreement not to take on future cases. In Minnesota, the Office of Lawyers Professional Responsibility has suggested that a confidentiality clause may be unethical if the language is broad enough to prohibit use of information instead of merely protecting against disclosure of facts and terms of settlement.
In the District of Columbia, an ethics opinion was released noting that a lawyer may be prevented from disclosing confidential information about a case that reaches settlement before filing in the public record. D.C. Ethics Opinion 335. This opinion recognized that a lawyer has a duty to abide by the client’s decision whether to accept an offer of settlement, and respect a client’s wish to keep certain information secret. For example, a plaintiff settling a sexual harassment claim may wish to protect his or her privacy by not allowing the lawyer to publicize any further information about the case. But, this would be different if the case were already part of the public record.
When reaching a settlement at mediation, the parties and their counsel should be cognizant of where they step when entering into a confidentiality agreement.