Q: A settlement agreement proposed by an adverse party has a non-disparagement clause. What should I know before signing?
A: When entering into a settlement agreement, the parties to a dispute may include a non-disparagement clause. Such a clause is intended to stop one party or both from making negative statements about the other going forward. If the parties are considering adding a non-disparagement provision, careful attention should be given to its scope in light of the parties and their dispute.
If one or both parties are a business, a non-disparagement clause would prevent the other party from speaking negatively about the business, its products, services, or management. Such a clause could also include an agreed-upon statement the parties will provide if asked about the litigation or any settlement reached (i.e., “the matter was resolved to the mutual satisfaction of the parties”). Non-disparagement clauses can be unilateral as to one party or mutual as to both and may restrict businesses or specific individuals.
Non-disparagement clauses are typically very broad in terms of what media they cover. For example, the clause may prevent the party from speaking negatively to others, emailing or texting such comments to others, or publishing (or reposting or liking) negative comments on social media.
As to whether the non-disparagement clause is lawful, that depends on whether certain exceptions are provided for. There should be exceptions that allow a party to provide truthful testimony in legal proceedings, communicate truthfully with any government agency, or enforce the agreement the parties signed. Carve-outs to the clause may also include notice to tax and accounting advisors, legal counsel, and boards of directors or shareholders of a corporation if necessary to effectuate the terms of the agreement.
Certain federal and state laws may also impact the scope or enforceability of a non-disparagement provision against employees in a settlement agreement. By way of example, for non-management personnel, a non-disparagement clause must be limited to false and defamatory statements to protect employees’ ability to publicize labor disputes. Parties may consider a savings clause, clarifying that the restrictions are not to be construed to interfere with, restrain, or coerce the exercise of such employee rights. Companies should limit who is bound by a non-disparagement obligation so that its scope is not overly broad and found unenforceable. If you have questions about the implications of a non-disparagement provision, you should always consult with counsel before signing.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.