A confidentiality agreement, as part of a settlement, is meant to prevent you from revealing the details of your settlement. Basically, the defendant (or respondent in Illinois work comp cases) doesn’t want others to know how much they paid you. The defendant might be afraid that the information would provide an incentive for others to file a claim of their own, or that it might make them look guilty. 

Most workers’ compensation cases, especially those that involve a permanent injury, end with a lump sum settlement for the worker. In some cases, the employer might want the injured employee to agree to keep the amount and terms of the settlement confidential. There are a few reasons why you should think twice before agreeing to something like this.

The main thing we want to point out is that the records of all claims at the Illinois Workers’ Compensation Commission are public anyway. The results of your settlement can be found pretty easily by anyone specifically looking for it. So in reality the confidentiality agreement isn’t going to keep the settlement amount confidential. It does prevent you from talking about it, though.

Also, signing a confidentiality agreement as part of your settlement agreement can be risky in that it might open you up to tax liability. In general, your workers’ compensation settlement should be tax-free. The law says that most payments that compensate someone for an injury are not to be taxed. However, if you are paid to sign a confidentiality agreement, that money can be taxed as income because you’re not being paid for an injury. You are being paid to keep quiet. If it’s all lumped together (confidentiality clause within a settlement agreement), then the IRS might try to claim that part of your settlement was payment for keeping quiet and that part should be taxed. You don’t want to open up this can of worms unless you are being given a significant amount of money for your potential trouble.

And back to our first point about the information being public anyway. The fact that others can still find out about the terms of your agreement put you in a difficult position. The other side might blame you for breaching the confidentiality agreement, even if you said nothing. You could be looking at a lawsuit where you’d have to pay a lawyer by the hour to defend you.  Who needs that headache?

For these reasons, we don’t usually recommend signing a confidentiality agreement. And in general, we believe that the more information that is available to the public, the better, so confidential settlements tend to rub us the wrong way.  And after all, these aren’t lawsuits, but claims for benefits

No matter your opinion on this stuff, don’t sign a settlement agreement, confidentiality agreement, or anything else for that matter, without running it by an attorney and talking about the potential pitfalls.. You don’t want to get caught off guard by one of these little-known exceptions in the law.

By Michael Helfand