General Motors

In 2009, General Motors confirmed through internal studies that it had created a faulty ignition switch. Between 2000 and January 2014, when GM finally issued a recall, several deaths were tied to the defect. During that time, GM settled multiple lawsuits and with each lawsuit came a “gag” order – neither party could discuss the settlement. More recently, the public became aware of how non-disclosure agreements (NDAs) are used in sexual harassment cases. As a result, the public was unaware of the defect and several more deaths occur. Some states have started to pass legislation that prohibit the use of NDAs in these types of cases. 

What are the legal, ethical, and policy implications of the parties’ decision to settle and enter into “gag” orders or NDAs? Do you think the states should prohibit these kinds of agreements when public health and safety is at issue – like in the GM case?

Valid nondisclosure agreements serves as an important legal instrument to protect ownership of confidential information and to avoid costly and lengthy litigations. Also, there are valid and legitimate reasons why parties involved desire to keep their agreements confidential, however, such agreements/settlements carry legal, ethical, and policy implications which can have positive or negative consequences for not just the involved parties, but also, for the society as a whole.

For example, keeping trade secrets and intellectual property confidential in order to maintain competitive advantage, and/or preventing copycat lawsuits arising from successful litigations are valid reasons for business entities to have NDAs. However, as seen in GM settlements from death lawsuits regarding faulty ignition switches, the confidential settlements prevented general public to become aware off the mechanical defects. Knowing the life endangering ignition defect in their automobiles, GM get the information confidential which lead to further loss of life. Such confidentiality was not only unethical but also harmful to public policy. By keeping the settlements secret through NDAs, regulators and government agencies were prevented from their duties of enforcing the law and protecting the public.

A victim of sexual harassment/misconduct might accept the NDA terms of a settlement out of embarrassment or reputation damage fears. Similar situations where confidential settlements allows abused victims off workplace harassment use their silence as negotiating leverage for a fair compensation and protects other employees from experiencing similar wrongdoings as a result of improvements in business practices, all the while avoiding damaging public exposure and costly litigation, NDAs can be seen performing their intended function of not only benefiting the involved parties, but also, not harming the society.

It is unethical to restrict attorney’s right to free speech and ability to counsel current/future due to terms of a settlement agreement. (see ABA Model Rules of Professional Conduct, Rule 5.6(b), tinyurl.com/7j8at7g; District of Columbia Bar, Ethics Op. 335, tinyurl.com/8tl4fhr; South Carolina Bar, Ethics Advisory Op. 10-04, tinyurl.com/9p4j3fe).

Secrecy of settlements for the purposes of hiding violations endangers public safety and prevents our legal system to protect us from wrongful conduct. When people do not know what is going on, they are not able to protect themselves but they expect that protection from our courts and government. Confidentiality in Settlement Agreements Is Bad for Clients, Bad for Lawyers, Bad for Justice, https://www.americanbar.org/publications/gp_solo/2012/november_december2012privacyandconfidentiality/confidentiality_settlement_agreements_is_bad_clients_lawyers_justice.html, (last visited September 2, 2018).