2014 Edition, Issue 2

Confidentiality Clauses

For many years, settlement agreements in the design professions have included confidentiality clauses whereby the settlement would be voided if either party revealed the settlement terms. This presented a dilemma when licensees were faced with reporting settlements as required by their licensing laws or potential voiding of the settlement agreement.

Existing provisions in Business and Professions Code section (BPC) 5588.3 (Report to Board not a Violation of Confidentiality) establishes that licensees are not considered to have violated a confidential settlement agreement or other confidential agreement by providing a report to the Board as required in BPC 5588.

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New legislation was passed and became effective on January 1, 2013 that applies to all persons regulated by a board, bureau, or program within the Department of Consumer Affairs. This legislation established BPC 143.5 (Provision Prohibited in Settlement Agreements; Adoption of Regulations; Exemptions) in the General Provisions of the BPC. The statute prohibits licensees or their authorized agents from including a provision in a settlement agreement that would prohibit the other party in a dispute from contacting the board, filing a complaint, cooperating with a complaint investigation or from requiring the other party to withdraw a complaint previously filed with the board. Additionally, this section provides that if the board takes disciplinary action based on the facts in the settled dispute, it cannot require payment of additional moneys to benefit the plaintiff in the civil action.

Licensees and their attorneys should make themselves aware of the BPC 143.5 provisions before drafting or signing a settlement agreement.