Severance and litigation settlement agreements often include a provision that prohibits one or more of the parties from making “disparaging” statements about the other. Such non-disparagement clauses are commonly used, but infrequently litigated. Consequently, employers negotiating these terms (as well as their counsel) may not be familiar with how they might be triggered and the practical effects of trying to enforce them. Here are a few thoughts for employers considering incorporating non-disparagement clauses in their settlement agreements.
The term “disparaging” is considerably more broad that the term “defamatory.” Although there are some variations in the parameters of the term “disparaging,” courts have found that it can mean “anything that detracts or discredits,” or “[t]o bring discredit or reproach upon; to dishonor, discredit; to lower in credit or esteem.” Perhaps the most consequential difference is many courts have held that statements can be disparaging even if truthful or non-defamatory. In particular, when “disparage” is used along with “defame,” courts are likely to recognize that the parties intended the terms to not merely overlap in scope.
For instance, the Court of Appeals of Georgia applied this principle in affirming a judgment against former employees for breaching a settlement agreement that prohibited the parties from “making any disparaging or defamatory remarks.” The former employees had, accurately, shared information that their former employer was “being investigated” for insurance fraud and other crimes. Although true, the statements nevertheless were disparaging and were the basis for liability, the court said.
Although proving that a statement is disparaging is not particularly onerous, it may be difficult to prove actual damages. The nature of the harm may seem readily apparent but nevertheless be speculative or difficult to quantify. A party that fails to carry its burden of proof would not prevail and, in turn, be subject to an attorneys’ fees award if there is also a prevailing party fee-shifting provision.
One way to get around the problem of speculation and establish damages is to include a liquidated/stipulated damages provision linked to the non-disparagement clause. Note that employers may want to choose the amount of liquidated damages carefully—setting the amount too high could be viewed as an unenforceable “penalty” provision; setting the amount too low may cap relief below actual harm in extreme cases. Another way to avoid the damages issue may be to seek an injunction and specific performance rather than damages.
In cases in which court approval of a settlement is required (such as with claims brought under the Fair Labor Standards Act), courts typically refuse to approve such a provision on public policy grounds or require that a carveout be made for truthful statements. Similarly, parties will not be liable for statements made under compulsion of subpoena or that otherwise come within the “litigation privilege” even if disparaging.
Mutual Non-Disparagement Clauses
In the context of settling an employment claim, plaintiffs will sometimes respond to a request to include a non-disparagement term by asking for it to be mutual. Employers may want to carefully consider whether to agree to a mutual non-disparagement term, largely because of the practicalities involved. For example, including such a term could potentially make an employer contractually liable based on any negative comments made by anyone employed by the business (including those who may not even know about the agreement).
When faced with such a demand, many employers may choose to take out any non-disparagement language from the agreement rather than have such a term apply mutually. Employers that find it important enough to impose non-disparagement terms on a claimant can reduce the risk and burden associated with a mutual term by bargaining for language that limits the scope to certain individuals or members of management and that explicitly limits coverage to exclude certain employees and situations.
The Anti-SLAPP Defense
A recent trend in jurisdictions that have enacted anti-SLAPP (Strategic Lawsuit Against Public Participation) legislation is for defendants to assert anti-SLAPP motions as a defense to disparagement suits. Such motions have had mixed results and appear to turn on the nature of whether the disparaging term was one protected under the anti-SLAPP law.
Non-disparagement provisions can be effective in dissuading former employees from “badmouthing a former employer post-employment or post-settlement. Nevertheless, employers may want to learn the limits and practicalities associated with enforcing these provisions.