Settlement agreements: High Court Ruling on the effect of confidentiality clauses in a settlement agreement
In Duchy Farm Kennels Limited v Graham William Steels [2020] EWHC 1208 (QB) the High Court considered whether a confidentiality clause in a COT3 was a condition of the agreement and whether breach entitled the employer to cease making further settlement payments.
The employer agreed to pay the employee a settlement sum in instalments in full and final settlement of the employee’s employment tribunal claims. The COT3 agreement also included:
- a clause under which the parties agreed to treat the fact of and the terms of the agreement as strictly confidential (‘the confidentiality clause’); and
- a warranty that the employee had not previously disclosed the facts and terms of the agreement to any other person.
The employer had been paying the settlement sum to the former employee in instalments but stopped as soon as it found out that the employee had divulged information about the amount of the settlement to another former employee. The employee issued proceedings to claim the payments under the COT3. The employer sought a declaration that the sums were no longer recoverable on the basis of breach of the confidentiality clause in the agreement.
The key issue was whether the confidentiality clause was a condition of the contract, any breach of which would entitle the other party to treat itself as discharged from any further obligation under the agreement, or an intermediate term, for which a breach would not entitle the employer to have stopped paying.
The County Court found that the employee had disclosed the settlement and its terms to a former colleague, but that such disclosure was not repudiatory and had not caused the employer harm.
The employer was therefore not entitled to cease payments, even if the employee had breached the confidentiality clause, as wording of the confidentiality clause was not sufficient to make the clause a condition of the contract.
The High Court agreed with this decision, confirming that payment of sums due under a settlement agreement cannot be avoided where an ex-employee is considered to have been in breach of a confidentiality clause, unless confidentiality is a genuine condition of the settlement agreement. A confidentiality clause could be expressly made a condition of a COT3, particularly if confidentiality was of sufficient importance under the agreement, such as where breach would cause the employer significant commercial risk, but the wording of this confidentiality clause was not sufficiently clear that confidentiality was a condition of the COT3.
The decision confirms that simply labelling a confidentiality clause as a condition of a settlement agreement will not automatically make it one. Therefore, care should be taken when drafting or negotiating confidentiality provisions to try to include specific consideration for why confidentiality is of particular importance in the circumstances.
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Rebecca Butler
is an employment managing associate of counsel
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