17 June 2020
Law at Work - June 2020 – 3 of 5 Insights
It has become standard practice for employers to include a confidentiality clause in a settlement agreement, obliging the employee to keep the fact and contents of a settlement agreement confidential. It makes commercial sense for employers not to want the fact or terms of any severance deals to become common knowledge lest others in the workplace see them as a soft touch or else try to jump on a 'gravy train'. If the employee breaches confidentiality, the agreement sometimes specifies that the employer will be entitled to withhold some or all of the payment. But will the employer always have a remedy if it seeks to rely on such a clause? It would appear not from the High Court case reported below; a lot will depend on the drafting and the particular context.
Mr Steels waived his claims against Duchy Farms Kennels through Acas using a COT3. It contained a confidentiality clause, requiring Mr Steels to keep the fact and terms of the agreement strictly confidential. When Mr Steels disclosed the settlement to another employee, Duchy Farms withheld the final instalments of the payment and sought a declaration that the final sums were not recoverable due to the employee's breach. The court held that Duchy Farms was not entitled to withhold the final instalments. On the facts, and having regard to the drafting of the agreement, confidentiality was not a condition of the agreement, it did not go the heart of it. While the court accepted, in principle, that an employee breaching confidentiality could be liable in damages where the disclosure generated 'copy-cat unmeritorious claims', this was not the case here. Neither had the employer been able to show anything 'special' about the case which demonstrated that confidentiality was of paramount importance.
If protecting confidentiality is crucial to the employer, it should make this clear by framing the term as a condition of the agreement. It should also set out the consequences of breach (usually withholding part of the settlement monies). Ideally, it should also be able to pinpoint a specific consideration, beyond not generally wanting its approach to settlement being known, which makes confidentiality paramount. In some cases, where there is scope for significant reputational damage, or else if the parties are well-known, it will be obvious that there are 'special circumstances'. However, in the majority of cases the employer will generally just want to keep its severance deals private and should be aware that it may not always have an effective remedy in such cases where it includes a generic clause.
by Multiple authors