‘Smoke screen’: Canadian airlines use NDAs to keep a lid on passenger settlements

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MONTREAL — Colleen Dafoe was at the Halifax airport last December with her husband and daughter when WestJet told her their trip was cancelled.

The airline suggested rescheduling them on a flight more than 10 days later, she said — well after the end of their planned vacation to the Dominican Republic to celebrate Dafoe’s 50th birthday with extended family.

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They never left Nova Scotia.

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Dafoe said she asked for a refund from WestJet, which refused and instead offered a vacation voucher valid for one year. Eventually, she turned to small claims court for the $1,200 in compensation she believed her family was owed under Canada’s passenger rights charter.

Only after she launched the legal action did a WestJet lawyer offer to pay them the full amount — if they signed a non-disclosure agreement barring them from discussing the matter.

“My husband and I hemmed and hawed about this. Part of us wanted to stand our ground and not accept the confidentiality clause, because airlines should not silence people when they have not followed regulations,” Dafoe said.

In the end, Dafoe agree to a settlement that included a confidentiality clause, which bars her from disclosing the amount.

WestJet says it does “not comment on NDAs publicly regardless of topic or circumstance.”

Dafoe said she agreed to settle because going to court seemed “kind of scary — we didn’t know if we could navigate the system well enough against a full-time lawyer and not come out losers.”

Her case fits into an apparent pattern where Canada’s two biggest airlines initially proffer vouchers — often worth between $150 and $300 — if a passenger complains. Then, should the customer decline and proceed to file a court claim, Air Canada and WestJet eventually offer up to as much as the original request, or sometimes more, after a protracted back-and-forth — so long as an NDA is inked.

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The Canadian Press communicated with more than 20 passengers of Canadian airlines who faced scenarios comparable with Dafoe’s. Some spurned the offers, while others agreed to settlements they said topped $1,000.

Consumer rights advocates warn that confidentiality agreements between big companies and individual customers are far from routine in most sectors, and that the policy amounts to a power play by airlines to avoid setting legal precedents or letting word of payouts spread.

Under Canada’s Air Passenger Protection Regulations, airlines must compensate travellers for breaches that range from cancelled flights to failure to rebook customers promptly.

The regime is overseen by the Canadian Transportation Agency, which faced a record backlog of 61,000 complaints against carriers as of Dec. 5. Many travellers said they opted to skip the regulator’s process — which begins only after an initial complaint directly to the airline is rejected — because of its nearly two-year wait time in some cases.

Air Canada said in a statement that non-disclosure agreements are nothing out of the ordinary, and that it pays compensation when owed.

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“NDAs are very common in the context of a litigated dispute resolution, and an agreement to them is often part of any settlement agreement entered into prior to a court hearing,” spokesman Peter Fitzpatrick wrote in an email.

“They are designed to protect the integrity of the negotiation process, notably because each case is different and settlements are not directly comparable.”

But Sylvie De Bellefeuille, a Quebec-based lawyer with advocacy group Option consommateurs, said the main goal is to suppress backlash — online and in the courts.

“They don’t want to have a precedent. And especially now with social media, they might not want to have people saying, ‘I settled with Air Canada for 500 bucks,”‘ she said.

That concern over word-of-mouth aligns with a justification of NDAs put forward by a WestJet lawyer in an email to one customer last October: “While a passenger may share their experience (online), it often leads to an expectation that all passengers may be compensated in the same or similar manner, despite having very different travel circumstances.”

An Air Canada paralegal offered a comparable explanation on a phone call recorded and shared with The Canadian Press by Elizabeth Patrick, who is seeking $400 in compensation plus expenses after her January flight was delayed more than five hours due in part to a defective airplane door. “You believe that you’re entitled to the $400, and we say you’re not entitled to it. So that’s why it’s important for us for you to sign a confidentiality agreement,” the paralegal said on the call.

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The confidentiality clauses are important enough to airlines that in some cases they offer the amount requested in passenger lawsuits, and occasionally more — along with an NDA — following a drawn-out process that can involve haggling with corporate lawyers.

Darren Guy said Air Canada initially gave him a $20 food voucher and no hotel accommodations after his evening flight to Vancouver from Montreal was cancelled in May, due in part to crew constraints. So he filed a claim for accommodation costs and $1,000 in compensation.

Air Canada paid him back for the $758 hotel price but denied the compensation, which regulations state range up to $1,000 in the event of a flight disruption of more than nine hours that was within the carrier’s control.

Guy sued in small claims court, and Air Canada responded with an offer of “vouchers and some cash.” He rejected it. The offer went up to a $1,000 voucher plus $800 in cash — more than the $1,000 he was asking for.

“The only stipulation was to sign a gag order,” Guy said, calling the experience “frustrating” and a “ridiculous … rigmarole.”

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“It just makes me angry,” he said. “I’m stubborn, and nobody’s going to tell me what I can and can’t talk about.”

He rejected the airline’s higher offer.

Kelly Geraghty of Maple Ridge, B.C., who has filed an $11,000 claim that includes moral damages against WestJet following flight disruptions last year, said confidentiality clauses impose a cone of silence that can be suffocating.

“The big thing for me is it is a life-long burden. You’re not even allowed to talk to your spouse about it,” she said of deals signed within the black box of an NDA.

“If they did nothing wrong, then why are they trying to hide it?”

Sometimes, the settlement offer is significantly lower than requested. Many customers wouldn’t know that they can simply reject a “lowball offer” in a bid to receive a higher one from airlines, said John Lawford, executive director of the Public Interest Advocacy Centre.

“It’s kind of a big power play from a much stronger party,” said Lawford, calling the practice “unconscionable, bad form, cheap … These are very small amounts.”

“It’s meant to muzzle dissent and to reduce criticism of the company,” he said. “You’re binding somebody to silence about conditions that might show other problems with the airlines.”

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From a business point of view, however, carriers are only doing what makes sense under the current system of rules and enforcement, said air passenger advocate Gabor Lukacs.

“From an economic perspective, the airlines are doing the right thing,” he said, stressing that the “smoke screen” thrown up by confidentiality clauses prevents cases from proliferating.

“The airlines are not evil, they are not good or bad. They are simply playing what is close and optimal strategy in a game where the cards are stacked against the passenger.”

To speed up complaint processing and coax customers back to the regulator rather than the courts, the Canadian Transportation Agency created the role of “complaint resolution officers.” Training began in mid-August, with 50 now hired and another 50 set to join next year, the agency said.

It is now hashing out regulations to cement sweeping reforms to the country’s passenger rights charter. Announced in April and set to take effect in the first half of 2024, the changes to the Air Passenger Protection Regulations appear to scrap a loophole through which airlines have denied customers compensation for flight delays or cancellations when they were required for safety purposes.

First rolled out in 2019, the new regime also ratchets up the maximum penalty for airline violations to $250,000 — a tenfold increase — and puts the regulatory cost of complaints on carriers.

This report by The Canadian Press was first published Dec. 17, 2023.

Companies in this story: (TSX:AC)

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