Tweaking Contract Law for Confidentiality Agreements
posted by Lawrence Cunningham
Can you keep a secret? If you promise to, law generally will hold you to it, even over protests that your First Amendment rights say otherwise. The famous golf pro, Tiger Woods, is reportedly asking his wife for such an ironclad lifetime promise never to discuss publicly anything about their collapsed marriage.
Today’s globalized info-tech economy puts an increasing premium on the value of information, how it is used and by whom. For centuries, contract law has readily permitted contracting parties to agree to hold information confidential and law has recognized essentially unbridled party capacity to so commit, subject only to the usual rules on contract formation, interpretation and performance.
There seems little need to revisit those rules in the vast majority of contemporary contract settings, like those between parties of roughly equally bargaining power and protecting economic interests like trade secrets or interests of innocent third parties like children of divorcing parents.
But there appear to be increasing pockets of relationships where these traditional principles may require updating, including in contracts settling lawsuits arising from claims of clergy sexual abuse, non-disparagement agreements of employees when leaving employment, and perhaps even in emotionally charged settings like divorce settlement agreements, such as that being negotiated between Woods and his wife.
The divorce settlement context was addressed last year by the Connecticut Supreme Court, which enforced a wife’s commitment of perpetual silence about the matter, over First Amendment objections. That court, like most law and commentary, including by Richard Epstein and by Dan Solove and Neil Richards, follows a traditional distinction between contract law and tort law.
Claims that disclosure violates tort law, such as defamation doctrine, require heightened judicial scrutiny to balance the tort claim with First Amendment principles, but claims that disclosure violates a contractual promise do not.
The distinction’s rationale rests on how contract duties are voluntary, and tort duties are status-based impositions. The rationale is reinforced on the contract side by noting how contract law principles of duress, definiteness, unconscionability and public policy against illegal bargains may suffice to police coercive, equivocal, or obnoxious contractual commitments of non-disclosure.
For the vast run of cases, that distinction and those rationales will do. But contract law could add value by carving out a special place for confidentiality clauses, subjecting them to standards law applies to other particular clauses. After all, contract law does not give equal dignity to every clause in a contract or across contract types.
For example, heightened judicial scrutiny applies to covenants not to compete, liquidated damages clauses, and specific performance clauses in personal service contracts. Heightened scrutiny applies to arbitration clauses and other provisions that amount to waiver of a right to trial by jury and other due process rights.
Heightened requirements apply to contracts within the statute of frauds, requiring a writing signed by the party to be charged, and a tougher bargain test of consideration applies to contracts involving family members to manifest requisite intention to be bound.
Maintaining freedom of contract to promise confidentiality is vital, and there is no good reason to apply to the contract setting the principles applied in the tort setting. And contract law’s venerable policing doctrines go a long way here.
But recognizing the peculiar features of information and promises to keep things quiet may warrant an incremental updating of contract law, putting those clauses in the narrow class of contract clauses that get a little more scrutiny than the run of cases get.
It is not necessary to make an extreme adjustment, such as probing whether the scope and duration of a commitment to silence are reasonable or even insisting that separate consideration appear for the promise of silence.
More modest adjustments would do. One could simply insist on showing that a party was represented by counsel and had an opportunity to negotiate the term. Another might shift the burden of proof concerning the otherwise-standard requirements of waiver.
You ought to be able to promise to keep a secret, and face legal sanctions if you breach. But the promise is not exactly like a promise to repay a loan or install electrical work. It doesn’t have to be treated the same way either.
June 22, 2010 at 7:27 am
Posted in: Contract Law & Beyond
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