Friday, February 1, 2008

The importance of confidential settlement agreements

Kathleen Peratis at the Jewish Daily Forward is proposing the passage of legislation to prohibit settlement agreements in employment discrimination cases from containing confidentiality clauses, and requiring their filing with a court so that they are publicly available. Her rationale is that because most of the enforcement of our civil rights laws is done by private lawsuits, the confidential settlement of those lawsuits chills public knowledge about discriminatory misconduct and the enforcement of the laws against it. In Ms. Peratis's own words:

Lately, however, a new and alarming flaw has emerged, a flaw that urgently warrants response: Although the number of employment discrimination cases filed has nearly tripled in the last 10 years, the amount of public information about them has dwindled to practically nothing. About 70% of employment discrimination lawsuits are settled — less than 4% actually go to trial — and nearly all settlement agreements require strict "confidentiality," meaning no one can reveal the terms of the settlement, including the amount paid to the plaintiff.

Thus, an important aspect of civil rights enforcement has become invisible. A weak system has become a secret system, and the public interest is suffering. None of this was supposed to happen.

"Employment discrimination statutes were not envisioned to promote secret settlement," says Minna Kotkin, a law professor at Brooklyn Law School who has studied the issue. "The whole thrust of the legislation was that, by facilitating employee suits, discrimination would be brought to public attention and the litigation process would serve to deter other employers from similar conduct." ...

With secret settlements, the penalties for job discrimination become invisible. Deterrence value is squandered. After expenditure of judicial resources and perhaps a blaze of media coverage, the silenced victim appears to say, "Oh, never mind." The general public comes to believe, as some surveys suggest, that employment discrimination is a thing of the past, attitudes of jury pools are skewed, and the chances of success for the next victim are diminished....

The problem has an easy fix: Prohibit the parties from withdrawing or dismissing any employment discrimination lawsuit unless the settlement agreement is filed as a public document with the court. Of course, as with all rules, there could be exceptions for good cause shown, but the default position would favor openness.

Ms. Peratis correctly points out that most employers will not settle an employment claim without confidentiality, perceiving that public knowledge of a settlement will only encourage others to bring claims. Her argument, however, has several key flaws, each of which underscores why I oppose her proposal.

First, it rests on the faulty premise that all settled claims have merit. Nothing could be further from the truth. Confidentiality is a necessary component of settlements to deter the disgruntled employee from filing a questionable lawsuit to make a quick dollar. Confidentiality has no effect on whether those who are being discriminated against, or perceive they are being discriminated against, will file a lawsuit. That class of employees will still seek lawyers, and those claims will still be filed.

Secondly, information about lawsuits is already publicly available. All court dockets are open and available to anyone who wants to go to the courthouse or, in most cases, to anyone who can access the Internet. The mere fact that a lawsuit has been filed serves Ms. Peratis's purpose of keeping the public informed about workplace discrimination claims.

Finally, while according to Ms. Peratis only 4% of employment cases proceed to trial, the jury verdicts for those that are successful are routinely large and frequently reported in the press. You tell me which of the following will have a greater impact on the likelihood of an employee filing a lawsuit - a tiny docket entry noting a $10,000 nuisance value settlement that no one will ever find unless they are specifically looking for it, or a front page article about a $16 million discrimination verdict? Indeed, if what Ms. Peratis says is correct, and the number of employment discrimination cases filed in the last 10 years has tripled, how can this alleged secrecy be a problem?

[Hat tip: Professor Paul Secunda at the Workplace Prof Blog]