What is a Non-Disparagement Provision?
A non-disparagement clause is a provision in a contract and/or settlement agreement that provides that the parties to that contract shall not disparage each other. Disparaging means saying or writing anything negative about the other party; for practical purposes in a non-disparagement clause it is essentially an insult.
The purpose of a non-disparagement clause is to allow a party to and/or to maintain its reputation in the community at large. The clause will "run" relative to third parties. Thus , if a disgruntled employee posts on Glassdoor that the employer was unethical/unfair, the employer could invoke the non-disparagement clause. But if the employee told the employer’s customer or client directly that the employer was unethical/unfair, the employer generally will have no claim of violation of the non-disparagement clause.
Non-disparagement clauses are very common in settlement agreements, where the idea is to put the dispute behind you, preventing any public comments.
The Components of a Non-Disparagement Provision
As noted above, a non-disparagement clause contains general language prohibiting negative statements about the other party. Deceptively simple, these provisions typically include five key elements:
- Scope of the restriction – there is a fine line between broadly drafted provisions that are enforceable and those that go too far. An agreement at the outset to avoid disparagement is not particularly onerous. However, when a non-disparagement provision requires a party to always address others respectfully and positively it is easier to trample on that provision. Enforceability is a fact-driven issue, and each agreement will be tailored to the relationship at issue.
- Parties to be bound – it is fairly common for one party to agree that it will not disparage the other. The more difficult issue is whether the parties to be bound are limited to those individuals with knowledge of the agreement, or whether they also include employees and agents of each party or current and future officers and directors for the companies involved.
- Term of the restriction – often in employment matters it will be difficult to avoid disparagement outside of employment without being overly burdensome. A time frame for compliance with the restriction may help, such as through the date an employee leaves employment and for a period of time thereafter.
- Remedies for breach – the parties should understand what relief will be available in the event of a breach. For example, will damages be adequate or will injunctive relief be required?
- Exception for truthful statements – like confidentiality provisions, many non-disparagement provisions will include an exception recognizing that any statement necessary to comply with law, regulation, or to respond to legal process (such as a deposition or subpoena) will not constitute a violation of the agreement.
Advantages of Non-Disparagement Provisions
One of the biggest selling features of a settlement agreement is the promise by the parties that they will no longer "disparage" the other in any way. In an age where anyone can say anything on social media and blogs, these provisions really have become more and more prevalent, and for both sides it can be a huge benefit.
For the defendant, it means the employee cannot disparage it as a participant in a larger conspiracy of sort to shut down a company. Without such provisions, if an employee were to go online and complain about an employer’s treatment, for example, or its pay practices, then others may jump on board, and you have a larger movement. In that case, you could have a legitimate business owner face a public relations nightmare. The Non-Disparagement provision minimizes this.
The flipside to this provision is for the employee and it means pretty much the opposite – the employer is not going to speak ill of the employee in the public sphere. Of course, the employer could still do this, provided there is no settlement agreement with a non-disparagement provision. The freedom to speak ill of a former employee often rests in a law like the Illinois Human Rights Act, which allows an employer to speak about a previous employee to the "prejudicial effect on the individual." That type of protection is limited to only those conversations between an employer and a prospective employer and is not widely applicable.
So, for an employee, especially post-litigation, it can be very important to have such a provision, because frankly, you do not know if a company will then turn its back on you and say bad things. The non-disparagement provision acts as a type of insurance policy against that.
Potential Downsides and Controversies
One of the major potential pitfalls related to degree of enforcement for non-disparagement provisions exists when an employee or former employee believes that the employer has violated the terms of the agreement. When the language is sufficiently broad, this will then lead to a renewed fight about enforcement and scope. A common controversy in this area stems from the thorny question of the rights which exists under the 1st Amendment. Thus, as the point relates to the dispute, some recent decisions indicate that a court enforcement or refusing to enforce a non-disparagement provision because it allegedly violates the employee’s constitutional freedom of speech may depend on the breadth of or drafting specificity of the language.
Additionally, a particular controversy may arise where the parties differ on the applicability of a non-disparagement provision to a specific statement made by the employee or former employee.
Interestingly, while employers may be able to rely on the definition of disparagement in the agreement to challenge the specific statement in court, attempting a wholesale approach of re-characterizating any statement made by the employee or former employee as a "disparagement". Often this occurs without an examination of the specific wording of the non-disparagement provision or the intention of the employee or former employee. Where this occurs, the courts have been highly critical and unamused by such tactics.
Examples of Cases Where Non-Disparagement Provisions are Needed
As a general condition of employment and a common part of human resource policies, an employer may require that an employee maintain confidentiality and non-disparagement concerning trade secrets, confidential information, co-workers and the employer’s business. In the context of settlement agreements, non-disparagement clauses may be appropriate in cases involving claims that the employee had sexual harassment, hostile work environment, negligent supervision or similar claims.
In the context of employment, confidential information includes trade secrets, customer lists and similar information not available to the public that an employee would have access to , and such matters as wanting to avoid having the departing employee tell customers the departure of certain personnel in order to minimize potential loss of business. In the context of an organization, non-disparagement clauses are useful in facilitating internal changes in leadership where the departing leader has made an impact on the culture and staff.
Particularly with patients that move to other practices, or physicians that have disagreements with practice partners, non-disparagement clauses are helpful in assuring physician peer review processes can function to adjudicate information about the physicians and minimize the potential for information to be communicated outside those processes.
Non-disparagement clauses are not to be used as a weapon to stifle free speech, but rather to protect legitimate organizational interests.
Best Practices in Drafting Non-Disparagement Provisions
As in all aspects of the employment law world, the key to effective bargaining over a non-disparagement clause is clarity and specificity. To that end, the ideal non-disparagement clause is part of a larger settlement agreement or release. This allows the drafter to harmonize the clause with other provisions in the document. The drafter should also be precise in defining the covered disparaging statements by limiting its application to specific individuals or groups and all those associated with them and by making clear that factual statements cannot be considered disparaging, even if they could be taken negatively by another reader. And finally, the drafter should be careful to ensure that the language buttons up against legality by formulating a proper consideration for the restriction on speech (e.g., a release of claims in exchange for non-disparagement).
Legal Considerations and Enforcement of Non-Disparagement Provisions
The legal implications of a breach or threatened breach of a non-disparagement clause can be significant for all parties involved. Traditionally, breach of contract lawsuits are governed by the remedial principle of expectation damages — a party may recover the benefit it expected to receive from the bargain as a result of the breach. But where a party’s non-disparagement obligations are allegedly violated and continued litigation over the matter would remain in litigation, what remedy should be available? The answer to this question may depend on where a breach of contract action is brought.
Some jurisdictions have held that a threatened breach of a non-disparagement clause must be remedy by using the "law of injunction." Under this doctrine, the threatened breach was said to cause the plaintiff an irreparable harm, leaving it with no adequate remedy at law. Other jurisdictions have held that the threat of ongoing breach does not cause any harm justifying the use of equitable remedy and instead simply awarded damages.
The reason the law of injunction has been favored in other jurisdictions is the insight that proving damages "may be difficult; but, if proved, financial-based damages challenge only the financial resources of a corporation." In contrast, monetary damages "do little to protect the very heart of" a non-disparagement clause: "the image of a company that desires to maintain the goodwill of the investing public . . . it is not only the dollar amount that is important, but also the goodwill of the shareholders."
Although the law of injunction has played a role in certain cases in Pennsylvania, it may be growing weaker by virtue of recent changes in Pennsylvania. Overall, however, Pennsylvania courts have yet to clearly reject the law of injunction. Disparagement is treated very seriously, and courts have the power to restrain acts of disparagement that are in violation of such prohibitions.
Alternatives to Non-Disparagement Provisions
If parties opt not to include a non-disparagement clause in their agreement, they may include other contractual language in their agreement that dissuades parties from making public comment regarding the case. For example, one alternative that appears to be gaining traction in medical peer review cases is a confidentiality clause in which the parties agree that the only comments the defendant can make to anyone regarding the allegations, the settlement, or anything relating to the agreement is that they have reached "a mutually satisfactory resolution of a matter."
Another option that is sometimes included in settlement agreements is a "neutral reference" provision. These provisions obligate a settling employer to respond to reference requests by providing only the dates of employment and position titles. The former employee is often then bound to confirm that the neutral reference is accurate, so that they cannot claim subsequent to the settlement that the employer has provided a potentially harmful reference .
Others cases have resolved without a non-disparagement clause being explicitly required or even mentioned in the settlement agreement. For instance, in Robbins v. Trump Canada Inc., 903 F.3d 159 (3d Cir. 2018), although the parties did not discuss a waiver of disparagement and the relevant agreement contained no non-disparagement clause, the Third Circuit held the "mere existence and continued prominence of the nondisparagement provision cast a cloud" on allegedly disparaging remarks made by the settling party after the agreement was signed. It thus appears that there may be an "implied" duty to refrain from disparagement even in the absence of an explicit provision containing such a waiver.
As noted above, anonymity is also a great deterrent to disparagement by the parties. Another potential deterrent to future or renewed publicity is to "ban together" with other settling defendants. That is, the plaintiffs may agree to be bound and to be reminded of their agreement by several parties so that they do not engage in disparagement with parties outside of the agreement.