Kerry Underwood

EMPLOYMENT: SETTLEMENT: EFFECT OF BREAKING CONFIDENTIALITY CLAUSE

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In

Duchy Farm Kennels Ltd v Steels [2020] EWHC 1208 (QB)

the Queen’s Bench Division of the High Court considered, on appeal, the effect of an employee breaking the confidentially clause in a Form COT3.

COT3 agreements are binding terms of settlement negotiated through ACAS, but the court here made it clear that the same principles would apply in relation to a Settlement Agreement under section 203 of the Employment Rights Act 1996.

Here, unusually, the terms of settlement were that the employer would pay the agreed damages by instalments, rather than in one go.

As is usual, the employee gave up his right to bring proceedings in relation to the alleged unfair dismissal.

The employee broke the confidentially clause and the company then stopped the instalments on the basis that its obligation to pay had fallen away due to the employee’s breach of the confidentially clause.

The employee then brought County Court proceedings under section 19A of the Employment Tribunals Act 1996 to recover by means of execution the sums payable under the COT3 agreement.

The court held that the employee had indeed breached the confidentially clause.

However, the court found that this amounted to a breach of an intermediate or innominate term of the COT3 agreement, rather than a breach of a condition, and so that did not automatically mean that the company was freed from its obligation to pay.

On the facts, it was not a repudiatory breach, or a renunciation of the COT3 agreement.

Consequently, the company still had an obligation to pay the remaining instalments.

The High Court upheld that decision on appeal.

The High Court said that there may well be cases which confidentially clause in a COT3 Agreement or Settlement Agreement might be of sufficient importance to achieve the status of a condition, but that was not the position here.

The High Court observed that the issue flagged up the general problem of enforceability of confidentially clauses in employment settlement.

It said that there are two answers to that problem, without recourse to treating any breach of the confidentially clause as a breach of condition.

The first, and most important one, is that the parties can make specific provision in the contract terms for what should happen if there is a breach of confidentiality.

For example, parties can agree that in the event of a breach, the ex-employee must repay all, or a proportion, of the money already paid over.

The second, and related, answer is that the COT3 Agreement, or Settlement Agreement itself, can specify that the confidentially clause is a condition.

If the parties state that a particular clause is a condition, then it is.

Absent those terms, then the parties risk a court finding that the clause is not a condition, but rather an intermediate or innominate term, and if that is the case, then the party seeking relief needs to show that there was a repudiatory breach, or a renunciation, of the agreement.

In ordinary circumstances, where no particular damage is done to the other party due to a breach of confidentiality clause, that will not be the case and relief will not be granted.

Comment:

A useful reminder that COT3’s and Settlement Agreements should not just be treated as templates to be printed off from Wikipedia or whatever.

Tick box law never works.

Written by kerryunderwood

July 31, 2020 at 2:33 pm

Posted in Uncategorized

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