Abuse of Confidentiality and Non Disparagement Clauses

Some Franchisors Press Hard in Agreements To Silence Franchisees About Abuses, But Clauses May Not Hold

I have the good fortune to be working on a project in which a franchisor employs confidentiality clauses and non disparagement clauses to attempt to prevent its franchisees from discussing their franchisor’s abusive practices and seeking ways to deal with the abuse, and to try to prevent its franchisees from testifying or giving information about the franchisor’s practices in support of other franchisees’ litigation against the franchisor.

Because of this work, a valuable resource can be made available to others who are in similar situations. Inquiries from other attorneys are invited.

Many settlement agreements in dispute resolution are agreed to be kept confidential for reasons long honored as favoring the promotion of early dispute resolution. To the extent that they act to prevent giving out information about the terms of any settlement, there is no perceivable harm in that.

Recently, however, the combination of non disclosure provisions pertaining to franchisor trade secrets and confidential business information that are found in franchise contracts themselves, and the confidentiality clauses in dispute resolution agreements are being used by abusive franchisors to threaten former franchisees with litigation in which it will be claimed that if they give information about abusive practices or testify against the franchisor, they will have violated those agreement clauses.

Does this practice represent evidence that can itself be used to show predation/abuse and lend credence to other evidence that might at first blush seem unbelievable? Probably yes, and how to use that is the project on which I have recently been working.

Similarly, abusive franchisors are trying to threaten present and former franchisees with suit for violation of non disparagement agreements if they decide to give evidence against the franchisor in any dispute.

Wrongful disparagement – the kind that would constitute a tort in the nature of a trade libel or slander – false statements about a business that are calculated to cause it injury and loss – are already actionable wrongdoing. Attempts to extend liability and threats of suit to discourage witnesses from giving evidence are not within the purview of that interest.

I have been working on this conduct as being usable in itself to prove abusive, intent on the part of the accused franchisor, which often assists in proving the claims themselves, and in gaining access to exemplary damages recovery for intentional wrongdoing, under common law principles and under many state statutes dealing with deceptive practices.

 This blog posting is to announce that we believe we have developed the proper manner of dealing with these tactics, and are willing to share our experience with other attorneys on an agreed basis that will prevent their having to do this work from scratch. It involves a good deal more than simply going to the library.

It is our position that courts would not be receptive to the use of these traditional options for the purpose of frustrating the administration of justice. That is not what they were intended to permit. There are far more important prerogatives that are available to deal with this abuse than the abusers thought were available. The more frequently such threatening behavior is brought out into the open, the more quickly it will become obvious that it is a practice that will more often than not come back to bite the abuser.