Loose Lips Sink Ships…and Settlements

By Bethany C. McCurdy

It is a common story. Employee sues company. Company decides to settle. Employee signs agreement and promises to keep it confidential. Company pays employee. Case dismissed, right? Not always, as recently demonstrated by a Florida state court of appeal that declined to enforce a settlement to a former employee because he violated the settlement agreement’s confidentiality clause.

The case, Gulliver Schools, Inc. v. Snay, involved Patrick Snay (“Snay”) and his former employer Gulliver Schools, Inc. (“Gulliver”) Snay served as Gulliver’s headmaster, and when the school decided not to renew his contract, he sued the school for age discrimination and retaliation. Gulliver and Snay engaged in mediation and ultimately settled the case. The terms of the settlement required three payments to be made by Gulliver: one to Snay’s counsel for attorney’s fees and two payments to Snay directly, $10,000 for backpay and $80,000 for other damages.

Gulliver, like many employers, did not want the settlement to be made public, and accordingly included a confidentiality clause in the agreement, which stated in part:

Confidentiality…[T]he plaintiff shall neither directly or indirectly, disclose, discuss or communicate to any entity or person, except his attorneys or other professional advisors or spouse any information whatsoever regarding the existence or terms of this Agreement…A breach…will result in the disgorgement of the Plaintiff’s portion of the settlement Payments.

(emphasis added). Specifically, the settlement agreement called for the disgorgement of the $80,000 payment to Snay in the event of a breach of the confidentiality provision. Snay signed the agreement and thus agreed to the terms of the confidentiality clause. Nonetheless, almost immediately following the mediation, Snay told his college-age daughter that the case “was settled” and that he was “happy with the result.” Snay’s daughter did what so many her age would do: she immediately took to her Facebook page, where she posted the following message:

“Mama and Papa Snay won their case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”

Snay’s daughter had approximately 1200 Facebook friends, and as she had attended Gulliver School herself, many of those Facebook friends, unsurprisingly, were current or former Gulliver students - in large part, the exact population Gulliver did not want to know about the settlement.

A mere four days after Snay signed the agreement, Gulliver, which had discovered the Facebook post, informed Snay that it considered him in breach of the settlement agreement and that it would not pay him his settlement proceeds. Snay, who was still within the seven days the settlement agreement provided him to revoke his acceptance of the agreement, did nothing. A week later, Gulliver informed Snay’s counsel that it would pay only the attorney’s-fees portion of the settlement, as Snay had breached the confidentiality clause of the agreement. In that same correspondence, Gulliver included a Joint Stipulation for Dismissal, which Snay signed and returned to Gulliver’s attorneys.

Litigation ensued when Snay turned to the courts to enforce the agreement and seek payment of $80,000 by Gulliver. A trial court decided in Snay’s favor and agreed that he did not breach the agreement. Gulliver appealed, and the Third District Court of Appeal reversed.

In its decision, the appellate court held that the language of the confidentiality clause was clear and unambiguous and that it prohibited Snay or his wife from disclosing any information about the settlement, either directly or indirectly. The court subsequently rejected Snay’s argument that, because he did not tell his daughter that he “won,” his conduct did not constitute a breach.

The court simply determined that once Snay made the existence of the settlement known to his daughter, he breached the agreement. The court further emphasized that when Snay’s daughter made the Facebook posting, she did “precisely” what the confidentiality clause was intended to prevent - “advertising to the Gulliver community” that her father “had been successful” in his claims against the school.

The court similarly rejected Snay’s argument that he “had” to tell his daughter “something.” The court noted that while Snay testified he knew the litigation was important to his daughter and that it would be necessary for him to give her some explanation, he could have easily brought this up in the settlement negotiations and given the parties an opportunity to address the issue of disclosure to his daughter within the terms of the agreement. Instead, he took it upon himself to do “exactly what he had promised not to do” and communicate with his daughter, in spite of the express terms of the agreement. (The court was likewise unimpressed by Snay’s position that the Facebook posting was not a breach of the agreement because he never actually told his daughter he was paying for her to go to Europe, coupled with the fact that she did not go to Europe).

Additionally, Snay’s age and retaliation claims were also dismissed because Snay both failed to exercise his right to revoke the agreement once Gulliver informed him of the breach and (somewhat inexplicably) signed and returned the stipulation to dismiss even after being informed Gulliver took the position that it did not have to pay him part of the settlement.

The case underscores for employers the importance of including confidentiality language in any type of settlement agreement and the importance of ensuring the language is straightforward and clearly communicates what conduct is prohibited. For example, should an agreement include language indicating that others are expressly permitted to learn of the terms of the agreement (spouse, immediate family member, attorney, etc.), it would be prudent for the agreement to also specify that a breach by any of those individuals will be considered a breach by the employee him or herself and will thus be subject to the same penalties.

In addition, the case also suggests a willingness of courts to enforce confidentiality terms, especially when the result of the breach is exactly the type of harm the company sought to prevent. When considering what types of penalties to include should a breach occur, it is important to ensure that the penalty is not oppressive and unnecessarily punitive. In this case, the company paid the backpay and attorney’s fees and sought only to recover the amount provided for punitive damages. This was money going directly from the company to the plaintiff for damages, nothing more. A court may be less likely to enforce a penalty for a breach that goes well beyond the amount contemplated by the agreement.

Regardless, this case reminds employers that the confidentiality clause of a settlement agreement should be carefully considered to ensure the terms are both reasonable and enforceable.

Significant Changes to Overtime Exemptions Proposed

By Jack Schaedel

Last week, the Obama Administration announced its intention to seek changes to the Fair Labor Standards Act (“FLSA”) by issuing an executive order that would direct the Department of Labor to revamp the interpretive regulations courts, agencies, and employers use to determine which employees are exempt from federal overtime laws. The changes would, among other things, raise the minimum salary threshold for overtime exemptions. This announcement comes on the heels of other developments related to workers’ wages that we have written about, including a February 2014 executive order increasing the minimum wage for federal contractors and on a trend in the states, including California, to raise minimum wages.

As reported in the New York Times, the proposed changes to the FLSA regulations both would raise the salary threshold for an employee to be treated as exempt - currently $455 per week, last set in 2004 - and would change the definitions of what makes an employee exempt. Employers in states with historically pro-employee public policies, such as California, New York, and Massachusetts, tend not to feel the impact of changes in federal employment laws as much as other states because their laws typically are more stringent than federal law. Thus, compliance with state law is usually sufficient to meet federal standards. The qualitative difference in the current proposal, however, is that, while the Obama Administration has not announced what it will propose for the new salary threshold or for the changes to the definitions for exempt employees, the proposed federal changes may well make the FLSA exemptions narrower than any current state standard. Thus, all employers, including those in states with narrower overtime exemptions than the current federal exemptions, would be impacted by these proposed changes.

While employers and other readers of the 60 Second Memo do not need to respond immediately to these proposed changes, this situation at least provides an opportunity for employers and their counsel to re-familiarize themselves with the law(s) of the state(s) in which they operate. Another action worth considering is a compliance audit of all exempt-classification decisions, so that employers can fully understand their current compliance with existing law and be better-prepared for any changes ahead.