Breach Of Confidentiality Clause Did Not Entitle An Ex-Employer To Stop Making Payments Under A COT3 Agreement

• Published date: 12 June 2020
• Author: Mr Michael Crowther
• Subject Matter: Employment and HR, Contract of Employment, Discrimination, Disability & Sexual Harassment, Unfair/ Wrongful Dismissal
• Law Firm: Wrigleys Solicitors

Decision highlights the limits of a generic confidentiality clause in settlement agreements.

When using settlement agreements, employers are primarily concerned to settle any actual (or potential) employment tribunal claims in exchange for payment. Depending on the circumstances, employers may also be keen to keep the existence and details of such settlements confidential, perhaps because of reputational risks and / or because of the risk that other employees will be encouraged to bring claims against the employer.

However, most settlement agreements contain confidentiality clauses as standard, whether or not confidentiality is among the chief concerns of the parties.

It is a common misconception that breach of a confidentiality clause contained in a settlement agreement automatically entitles an employer to recover, or cease paying, sums due under a settlement agreement. As highlighted by a recent decision of the High Court, the options available to an employer in these circumstances will vary depending on the importance placed on confidentiality by the parties.

Case details: Duchy Farm Kennels Limited v Steels [2020]

Mr Steels brought a number of claims in the Employment Tribunal against DFK, including unfair dismissal. A settlement was negotiated with the assistance of ACAS and recorded on a COT3 form (a simple form of settlement agreement ratified by ACAS).

Under the terms of the COT3, DFK agreed to pay Mr Steels '15,500 by way of 47 weekly instalments in full and final settlement of his claims against DFK. It included a standard confidentiality clause stating that both parties would not disclose the fact or terms of the agreement to anyone else, unless required to so by law or a regulatory authority or to a party's professional advisors.

After several weeks the Managing Director of DFK heard that Mr Steels had told a third party about the settlement and the money he was receiving under it. As a result, DFK stopped paying the weekly instalments and Mr Steels issued proceedings in the County Court to enforce payment of the settlement monies.

At first instance, the judge held that Mr Steels had breached the confidentiality clause but that the nature of the clause meant DFK was not entitled to stop paying the settlement monies. DFK appealed the decision.

The High Court concluded that the County Court was correct that the confidentiality clause was not a condition (or fundamental term) of the contract. This was on the basis that the core issue of the COT3...