Can an employer avoid paying out on a settlement if an employee breaches a confidentiality clause?
No, held the High Court, in Duchy Farm Kennels v Steels, unless confidentiality is (genuinely) a condition of the agreement.
The High Court heard an appeal from a County Court action, apparently the first appeal on the status of an express (rather than implied) confidentiality term in an employment settlement (here a COT3 via ACAS). After the (former) employee allegedly breached the confidentiality clause in the COT3, the employer stopped the staged payments due. The employee sued for his payments. The County Court held that the employer was not entitled to cease payments, even if the employee had breached the confidentiality clause, as the confidentiality clause was not a condition of the contract.
The key issue was whether the confidentiality clause was a condition of the contract, or an intermediate or innominate term, for which a breach would not entitle the employer to have stopped paying. The County Court had rightly held that the 'boilerplate' confidentiality clause in the COT3 was not a condition of the contract, so a breach would not have permitted the employer to avoid paying up. The High Court noted that a confidentiality clause could be expressly made a condition of a COT3, particularly if confidentiality was the significant benefit that the employer got under the settlement (rather than avoiding a tribunal claim), although labelling the term a 'condition' would not automatically make it one. Parties could alternatively make specific provision for damages in the event of a breach of confidentiality.
Here in a fairly standard employment dispute, there was no significant commercial risk from a breach of confidentiality, at most the possible risk was of other employees bringing 'copycat' claims. To treat this term as a condition would not have led to a reasonable or desirable result, even though if a confidentiality term is not a condition, in practice it may not be enforceable at all.
The judgment gives useful pointers to practitioners seeking to draft (or drive a coach and horses through) confidentiality clauses in settlements.
Thanks to Ed McFarlane of Deminos HR for preparing this case summary.