Confidentiality and non-disparagement clauses in settlements are two separate promises that usually appear side by side: one restricts what you can say about the settlement itself, and the other restricts what you can say about the other party. Both are enforceable, both can cost you the money you just received if you breach them, and both are shaped by a growing web of federal and state limits that most people signing settlements never hear about. Before you sign, you need to know what each clause actually covers, which exceptions must appear in writing, and how the specific language changes your risk.
What a Confidentiality Clause Actually Restricts
A confidentiality clause typically covers three things: the dollar amount paid, the facts underlying the dispute, and sometimes the existence of the agreement itself. The broadest versions prohibit you from confirming that you settled at all. Narrower versions let you acknowledge the matter is resolved but keep the numbers private.
The exact wording matters more than people realize. A clause covering “any information regarding the existence or terms” of the settlement doesn’t just stop you from posting the number online. It means you cannot casually tell a coworker the case is over, mention to a friend that you “got something,” or confirm anything to a reporter. The obligation usually extends through anyone you tell, so a permitted disclosure to your spouse still binds your spouse.
What a Non-Disparagement Clause Actually Restricts
Non-disparagement reaches further than defamation law in one crucial way: it can prohibit truthful statements. Defamation requires falsity. A non-disparagement clause bars anything that casts the other party in a negative light, accurate or not. A negative online review, criticism of a former employer to colleagues, or a critical social media post about a company’s products can all violate the clause even when every word is true.
What counts as “disparagement” is defined by the contract, and vague definitions cause problems on both sides. A clause prohibiting “any statement that could be perceived as negative” is harder to enforce than one that identifies specific categories of prohibited speech. Pinning down that definition is one of the most important things to do in negotiation.
The other question to settle is whether the clause runs in both directions. Without mutual language, only you are restricted, and the paying party stays free to say what it likes about you. In employment cases, this matters enormously: a former employer’s remarks to reference-checkers can follow you for years. Insist on mutuality.
The Carve-Outs Every Agreement Should Contain
Nearly every confidentiality clause lets you disclose to a small circle: your spouse, your attorney, your accountant or tax preparer, and sometimes your therapist. Those people are usually bound by the same secrecy, so your spouse cannot then tell their friends. Make sure the agreement identifies this circle clearly. Ambiguity here can be treated as a breach.
Beyond personal advisors, several government-facing carve-outs must appear or the clause runs into federal law.
You always retain the right to respond to a lawful subpoena, testify in court, and cooperate with government investigations. Under SEC Rule 21F-17(a), no agreement may prevent you from communicating with SEC staff about possible securities law violations, and this applies even when the agreement technically “allows” reporting but attaches conditions like advance notice to the company.1U.S. Securities and Exchange Commission. Whistleblower Protections
The Defend Trade Secrets Act adds another layer. Under 18 U.S.C. § 1833(b), you cannot be held liable for disclosing a trade secret to a government official or attorney when reporting a suspected violation of law, and employers are required to include notice of this immunity in any agreement governing confidential information. An employer that omits the notice loses the right to collect enhanced damages or attorney fees in a later trade secret suit against you.2Office of the Law Revision Counsel. 18 USC 1833 – Exceptions to Prohibition
Federal Laws That May Override the Clause
The Speak Out Act
The Speak Out Act, enacted in December 2022, makes pre-dispute non-disclosure and non-disparagement clauses unenforceable in cases involving sexual assault or sexual harassment.3Office of the Law Revision Counsel. 42 USC 19403 – Limitation on Judicial Enforceability of Nondisclosure and Nondisparagement Contract Clauses The operative phrase is “agreed to before the dispute arises.” The law targets NDAs signed as part of onboarding or an employment agreement before any harassment occurs. By its own terms, it does not invalidate a confidentiality clause negotiated as part of a settlement after the dispute has arisen. People trip on this constantly. If you are signing a settlement to resolve a harassment claim, the Speak Out Act likely does not free you from that settlement’s NDA.
The Act does preserve state laws that go further, and several states have.
The NLRA After McLaren Macomb
In 2023, the National Labor Relations Board’s McLaren Macomb decision returned to the position that employers may not offer severance agreements requiring employees to broadly waive their rights under the National Labor Relations Act. The case involved severance terms that prohibited disparaging the employer and disclosing the agreement.4National Labor Relations Board. Board Rules that Employers May Not Offer Severance Agreements Requiring Employees to Broadly Waive Labor Law Rights The NLRA protects the right to discuss wages, working conditions, and workplace problems with coworkers, agencies, and the media.5National Labor Relations Board. Concerted Activity A clause broad enough to prevent those discussions can be struck down. One limit: the NLRA generally does not cover supervisors and managers, so the protection applies mainly to rank-and-file employees.
EEOC-Filed Cases
When the Equal Employment Opportunity Commission itself files the lawsuit, it will not agree to a confidential settlement. All terms, including the total monetary recovery, go on the public court record.6U.S. Equal Employment Opportunity Commission. Standards and Procedures for Settlement of EEOC Litigation Private settlements of discrimination claims can still be confidential; a case the EEOC has taken over cannot be.
State Laws That Void or Reshape NDAs
The biggest recent shifts have come from state legislatures. More than a dozen states have restricted or banned NDAs in settlements involving workplace harassment, discrimination, or both. The specifics vary.
Some states prohibit confidentiality provisions that block disclosure of the factual information underlying a harassment or discrimination claim, while still allowing the dollar amount to stay private. Others void NDA provisions in separation agreements that prohibit disclosure of any information about unlawful workplace conduct. A few states impose enforceability requirements: mandating that the clause bind both parties equally, that it expressly preserve the right to disclose facts to family and government agencies, and that any liquidated damages be proportionate rather than punitive. At least one state imposes a $5,000 penalty per agreement that violates the rules.
If your settlement involves workplace harassment, discrimination, or retaliation, whether the NDA holds up depends heavily on which state’s law governs. Language that is standard in one state may be void in another.
The Tax Consequences People Miss
Section 162(q): The Payor’s Problem
Under 26 U.S.C. § 162(q), a business cannot deduct a settlement payment related to sexual harassment or sexual abuse if the settlement is subject to a non-disclosure agreement. The same rule blocks the deduction of related attorney fees.7Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses For a company paying a large settlement, losing the deduction can increase the real cost by tens of thousands of dollars. That creates a direct financial reason for a company to drop the NDA or structure the resolution differently.
The IRS has clarified that this deduction ban applies only to the payor. If you receive a harassment settlement subject to an NDA, you can still deduct your own attorney fees.8Internal Revenue Service. Section 162(q) FAQ
How Confidentiality Payments Are Taxed to You
When an agreement allocates a specific dollar amount to the confidentiality obligation itself, that amount is generally taxable as ordinary income. Courts have treated the promise of silence as a separate asset from the underlying injury claim. If part of a settlement compensates you for physical injuries (normally tax-exempt under Section 104(a)(2)), an amount allocated to confidentiality can lose that exemption and become taxable.
The paying party typically reports amounts designated for confidentiality on Form 1099-MISC in Box 3.9Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC How the settlement document splits the payment across categories directly affects the tax bill for both sides. A vague agreement that lumps everything together invites the IRS to make its own allocation, and that rarely favors the taxpayer.
What Happens If You Breach
The most common enforcement tool is a liquidated damages clause that sets a specific dollar penalty for any breach. Some agreements set a flat amount per violation. Others require the full return of the settlement payment. A clawback provision can effectively undo the deal: violate the confidentiality or non-disparagement terms and you forfeit some or all of what you received.
Courts enforce liquidated damages only when the amount reasonably approximates the harm a breach would cause. A penalty wildly disproportionate to the actual damage, or one clearly designed to punish rather than compensate, risks being thrown out. Courts assess this case by case, generally asking whether actual damages would be hard to calculate (they usually are, since reputational harm is inherently difficult to quantify) and whether the stipulated amount is reasonable given that difficulty.
Beyond money, the other party can seek an injunction ordering you to stop disclosing. Many agreements include language stipulating that injunctive relief is appropriate for a breach. Even so, a court retains discretion and the party seeking the order must still show that money damages will not fix the problem, that they are likely to win on the merits, and that the balance of hardships favors the injunction. A temporary restraining order can sometimes be obtained on an emergency basis in the first days after a breach.
Many settlement agreements also include a prevailing-party attorney fee provision. Whoever wins a dispute over a breach can recover legal costs from the other side. That shifts the economics of enforcement significantly. Without it, litigating a breach can cost more than the liquidated damages recovered. With it, a breaching party faces the penalty and the other side’s legal bills.
How Long the Silence Lasts
Unless the agreement says otherwise, confidentiality and non-disparagement obligations typically survive indefinitely. Most agreements include a survival clause stating that these provisions continue after everything else has been performed. You can receive the check, close the case, and remain bound decades later.
Some agreements set a defined period, commonly three to ten years. Others tie the end to a specific event, such as the information becoming public through no fault of yours. Duration is negotiable. A five-year window is easier to live with than a perpetual obligation, and asking for one is reasonable in most contexts.
Social Media and the Indirect Breach
Social media has turned confidentiality breaches from a theoretical risk into a routine one. In one well-known case, a man settled an employment dispute for $80,000 under a confidentiality clause, told his daughter about it, and she posted on Facebook that her parents had won and the defendant was “paying for my vacation to Europe this summer.” The court ruled the father had breached the agreement and forfeited the entire settlement.
The lesson extends past deliberate posts. Vague references to “getting what you deserved,” check-ins from vacation destinations timed suspiciously close to a settlement, and sudden visible changes in spending can all become evidence of a breach. If your agreement covers indirect disclosures, anything that lets someone reasonably infer the settlement details can count. Treat the clause as covering not just what you say but what you allow others to figure out.
Before signing, know exactly who you are allowed to tell and under what conditions. If you need to inform a family member outside the standard carve-outs to manage the fallout of a dispute, negotiate that exception into the text. Courts have shown little patience for the argument that you “needed” to tell someone who wasn’t listed.