Non-disparagement clause in settlement agreements: what it means and how to draft it

What a non-disparagement clause does

In a settlement, the parties agree to end a dispute in exchange for consideration, usually a payment and a mutual release of claims. A non-disparagement clause protects the value of that bargain by stopping either side from undermining the other after the ink dries. It typically reaches oral and written statements, social media posts, online reviews, comments to the press, and remarks made to customers, employees, or business contacts.

The clause does three things at once. It preserves the reputational peace the parties paid for, because a settlement that ends the lawsuit but not the public feud has not really ended anything. It gives each side a clear, contractual rule instead of an open-ended argument over what counts as defamation. And it supplies a remedy that is far easier to invoke than a defamation suit, which requires proving falsity, fault, and damages. By making the promise contractual, the parties lower the bar: a covered statement is a breach of the settlement, full stop.

Scope defines its value. A well-drafted clause states who is bound (the named party, and often its officers, affiliates, attorneys, and agents), what speech is covered (false statements only, or any negative statement), to whom it applies, and how long it lasts. In the settlement context, that scope question is unusually sensitive, because statutes and courts increasingly protect a claimant’s ability to describe what happened to them, especially in disputes involving discrimination or harassment.

Drafting example

Non-Disparagement. The Parties agree that they shall not, directly or indirectly, make or publish any statement, oral or written, that disparages or is reasonably likely to harm the reputation or goodwill of the other Party, its officers, directors, employees, or products. Mutual wording binds both sides and reads as fairer to a court reviewing a settlement. Nothing in this Section prevents any Party from (a) making truthful statements or disclosures required by law, subpoena, or legal process; (b) filing a charge with, communicating with, or participating in an investigation by the EEOC, the NLRB, the SEC, or any other government agency; (c) discussing the underlying facts of any claim of unlawful discrimination, harassment, or retaliation to the extent protected by applicable law; or (d) enforcing this Agreement. These carve-outs keep the clause from operating as an unlawful gag on protected activity. This Section survives the settlement and continues indefinitely.

The annotations carry as much weight as the operative words. Mutual framing signals balance. The government-agency and truthful-testimony carve-outs preserve rights that no private contract can waive. The discrimination and harassment carve-out responds directly to statutes that void non-disparagement terms which silence a claimant. The survival sentence answers the question that otherwise invites a second dispute: how long the promise lasts.

What US law says

A non-disparagement clause in a settlement rests on ordinary contract principles, so it is generally enforceable when supported by consideration (here, the settlement payment and release) and drafted with a reasonable, defined scope. The First Amendment does not bar it, because it restrains the government, not parties who voluntarily limit their own speech for value. Several federal and state rules, though, cut across that baseline, and they matter more in settlements than almost anywhere else.

The federal Speak Out Act (2022) makes pre-dispute non-disparagement and nondisclosure clauses unenforceable in disputes involving sexual assault or sexual harassment. Most settlement clauses are agreed after a dispute has already arisen, so the Act often does not reach them, but the line between pre-dispute and post-dispute can be contested and should be checked. Under the National Labor Relations Act, the NLRB’s McLaren Macomb decision (2023) held that overly broad non-disparagement and confidentiality terms offered to non-supervisory employees can unlawfully chill protected activity, which reaches many employment settlements.

Federal tax law adds a trap. Section 162(q) of the Internal Revenue Code denies a business deduction for settlement payments related to sexual harassment or abuse when the settlement is subject to a nondisclosure agreement, and a broad non-disparagement clause can be caught by that rule. Enforcement agencies also treat clauses that block employees from filing or assisting a charge as unlawful, so an EEOC or similar carve-out is effectively mandatory.

State law is where settlement non-disparagement clauses most often fail. California, New York, New Jersey, and a growing list of states restrict non-disparagement and confidentiality provisions in settlements of discrimination, harassment, or retaliation claims, and several require specific language or void terms that prevent a claimant from describing the underlying facts. New Jersey’s highest court, for example, has held a settlement non-disparagement provision unenforceable to the extent it barred a claimant from discussing details of her discrimination case. Because these rules are state-specific and change frequently, the enforceability of any clause should be confirmed for the governing-law state before signing.

Common mistakes to avoid

The most common error is overbreadth. A clause that bars “any negative statement” can sweep in truthful accounts of discrimination, government reports, and sworn testimony, which makes it both partly unenforceable and, in employment settlements, a fresh legal exposure. Narrow the language to false or misleading statements, and always carve out legally protected speech.

A second mistake is treating a settlement clause like an ordinary commercial one and ignoring the harassment and discrimination statutes above. A provision that is fine in a vendor dispute can be void, or can even cost a tax deduction, in the settlement of a harassment claim. A third is a one-sided clause where mutuality was expected: if only the claimant is bound, the released party stays free to criticize them, and the imbalance weakens both enforcement and goodwill.

Other recurring gaps include no survival language, so the promise arguably ends with the agreement; no defined remedy, which leaves the injured party with only hard-to-prove damages; failing to say whether officers, attorneys, and affiliates are covered; and no reference to online reviews and social media, where most modern disparagement actually happens. A liquidated-damages figure can help quantify reputational harm, but a court will strike it if it operates as a penalty rather than a reasonable estimate of loss.

When it matters most

Non-disparagement clauses do their heaviest work in exactly the settings where settlements arise: the end of employment, the resolution of a commercial or partnership dispute, and the close of litigation that has already generated public friction. In each, the parties are paying to put a conflict behind them, and a single post or press comment can reopen it. The clause is the mechanism that keeps the peace they bought.

They matter most in employment and harassment settlements, where the tension between protecting reputation and preserving a claimant’s voice is sharpest, and where a poorly drafted clause can violate the very laws the settlement was meant to resolve. They also matter in business divorces, franchise and vendor disputes, and any settlement where ongoing market reputation is at stake. In each case, the clause is a survival obligation that must be tracked long after the release is signed, because a breach can occur years later in a single message.

That tracking is where disciplined contract management pays off. A non-disparagement clause is only as strong as an organization’s ability to remember it exists, locate the exact wording, and act quickly when a breach appears. A CLM platform like Pactolane keeps every executed settlement in a searchable repository with a full audit trail, and PactAI can surface non-disparagement and other survival clauses across a portfolio, extract their scope and duration, and flag them in a multilingual executive summary so counsel is not reconstructing obligations from scattered files. Compliance playbooks can check each new draft against your standard carve-outs, and because PactAI prepares while your team decides, a well-drafted clause becomes a promise you can actually enforce.

This page provides general legal information, not legal advice.