When can business owners keep settlements confidential?

| Jan 8, 2021 | business litigation, employment law

All business owners take great care to prevent legal disputes. However, it is almost impossible to totally eliminate the risk they face. That is simply the reality of navigating the business world.

Even so, there are ways that business owners can protect their business while settling legal disputes. For example, one critical factor to protect the business is to secure a confidential settlement agreement.

Who is subject to confidentiality in these cases?

There are often many parties involved in the process of resolving a business dispute. This can make it challenging to keep certain matters confidential from the public – including their consumer base and other business affiliates.

So, business owners often wonder how they can protect their business when settling damaging disputes or claims. In many cases, making a settlement agreement confidential can help. The confidentiality clause applies to all parties involved in the case, including:

  • Plaintiffs;
  • Defendants; and
  • Attorneys or counsel.

With such a clause in place, none of the parties listed above can discuss the proceedings of the case or the details of the settlement. They could face financial penalties if they breach this agreement. This not only keeps the details of this case between the relevant parties, but it can also protect businesses from subsequent legal disputes and litigation.

However, confidentiality is not always a possibility

Business owners can include a confidentiality clause in their settlement agreement in most cases, from partnership disputes to employment disputes, especially if they are resolved outside of court. However, it is important to note that there is an exception when it comes to confidential settlement agreements.

In 2018, California lawmakers and Gov. Jerry Brown passed a law that bans the use of such agreements in employment disputes involving:

  • Sexual harassment or assault;
  • Discrimination based on sex; or
  • Retaliation for reporting sexual harassment.

This ban applies in all these cases, regardless of whether the parties resolved the dispute in or outside of court.

Understanding the benefits – as well as the limitations – of a confidential settlement agreement is critical, especially when business owners face the risk of a legal dispute.