Jan 31, 2023
Unintended Consequences of Confidentiality Clauses
[Originally published in the Los Angeles & San Francisco Daily Journal, November 23, 2022]
The insertion of a confidentiality clause (and its cousin, the non-disparagement provision) into a settlement agreement may convert an otherwise nontaxable settlement into a taxable one. In sexual harassment claims, an employer’s request to keep the amount of the settlement confidential may result in the non-deductibility of the employer’s settlement payment and defense fees. To avoid these unintended consequences, a quick review of a few tax rules is helpful.