Secrets protect the powerful

Confidential settlements are becoming all too common as high-profile defendants cut deals with clauses that prevent plaintiff lawyers from publicizing their results. Not only does this prevent the public from understanding the severity of the tortious conduct at issue, but it also hinders other attorneys from knowing the value of certain types of cases.

Whose interests are served when the richest and most connected 0.1 percent are taxed one week of annual income for tortious conduct against their employees? Maybe defendants need to sweat losing a month's income before they will think twice about crossing the line. The current system facilitates misconduct by protecting the reputations and even the wallets of wrongdoers. Frankly, it offends public policy that powerful tortfeasors can avoid public shame while paying out less, without ever admitting guilt.

The relatively low costs borne by a powerful individual or multinational corporation to settle a given case does little to deter future misconduct when the aggrieved parties are silenced. Some plaintiffs initially forego more cash in favor of terms focused on correction and prevention. Few among the recent cavalcade of vocal sexual harassment victims ever received confidential settlements.

High-profile sexual harassment scandals involving rich and powerful men, including Harvey Weinstein, Bill O'Reilly and Bill Cosby, have turned the microscope on how common these confidential settlements have become in shielding celebrities and influential people from negative publicity.

One of the few willing to violate the confidentiality clause in her settlement with movie mogul Weinstein was a former assistant who worked for Miramax, Zelda Perkins. A negotiated, non-monetary term of her settlement stated, "[I]f a complaint against Mr. Weinstein occurred within two years of the contract and it resulted in a settlement of either £35,000 or six months' salary Miramax agreed to report the matter to Disney -- or to dismiss Mr. Weinstein."

In theory, confidential settlements sound good for plaintiffs seeking high payouts. After all, "Plaintiff attorneys frequently use the confidentiality as leverage to create value in settlement negotiations." Chloe Roberts, "The Issue With Confidential Sexual Harassment Settlements," Law360 (Nov. 21, 2016). It seems intuitive that defendants will pay out more in exchange for plaintiffs' silence. So, might settlement offers nosedive in value if defendants aren't buying plaintiffs' silence? No.

Actually, confidentiality agreements depress settlement values. They prevent plaintiffs' attorneys from publicizing favorable agreements. With unsealed settlements, plaintiffs in subsequent actions could hold defendants to the higher dollar amounts previously agreed upon. Indeed, many defendants anticipating actions from multiple plaintiffs hide behind confidentiality clauses, hoping to divide and conquer.

Confidentiality clauses also disproportionately harm inexperienced lawyers. These new practitioners lack access to terms agreed to in previous cases. But seasoned defense attorneys enjoy that insight. This discrepancy adds to the already unequal bargaining power between powerful tortfeasors and their victims.

Some commentators also worry that the status quo allows biased actors to manipulate what little information seeps out about confidential settlements. They fear that "media reports focus on outlier cases; lawyers' networks and professional interest organizations circulate information on spectacular settlements; and special interest groups bring attention to extravagant settlements that are most likely to induce legislative counteraction," according to an Oct. 23, 2017, article in the Financial Times.

Eradicating certain confidentiality clauses coupled with robust court oversight would undermine these actors' practices. For instance, Florida enacted the Sunshine in Litigation Act to prevent defendants who pose a "public hazard" from hiding behind confidentiality agreements. The law attempts to balance the public's interest in deterring tortious conduct with its citizens' freedom of contract. Still, a fear emerges that "a ban on secret settlements may lead publicity-conscious defendants to settle earlier in the pre-filing stages where no ban applies." Ben Depoorter, "Essay: Law in the Shadow of Bargaining: The Feedback Effect of Civil Settlements," Cornell Law Review Volume 95, Number 5 (July 2010). This might result in even less transparency.

Still, others' chief concern is satisfying the different needs of each victim. Gloria Allred argues that a total ban on confidentiality agreements would wrestle a choice away from certain victims who might value their privacy. That course seeks to preserve a plaintiff's option, even if it results in lower settlements and continued misconduct.

Another way for plaintiffs to push back would be to aggressively pursue complaints via law enforcement and public agencies. The Financial Times stated, "NDAs cannot lawfully prevent people from reporting claims to law enforcement and government agencies, such as the Equal Employment Opportunity Commission."

On the flipside, plaintiffs who have signed NDAs are fearful of testifying in a criminal procedure because of the negative consequences associated with breaking a nondisclosure agreement. If the settlement includes financial consequences for violating the terms of the agreement, the recipient could be forced to pay damages larger than the amount of the settlement. This is another chilling effect surrounding these closed-door resolutions aimed at hiding the egregious behavior of a wrongdoer who feels protected by a shroud of secrecy.