Settlement Agreements and Confidentiality Clauses

The High Court, ruling in Duchy Farm Kennels v Steels, has confirmed that an employer cannot avoid paying sums due under a settlement agreement (where the employee is suspected of breaching the confidentiality clause) unless confidentiality is actually a condition of the agreement.

In this case, the employer had agreed to pay the settlement sum to the employee in instalments and ceased paying these when it discovered that the employee had disclosed the details of the agreement to a third party; the employer believed this was a breach of the confidentiality clause.

Through the appellant system the case made its way to the High Court. If the confidentiality clause has indeed been breached, a factor that was also in dispute, the key issue was whether the clause was of sufficient importance to achieve the status of a condition, and therefore free the employer from the obligation to pay the remaining instalments. Three key observations were made about the clause:

• The fact that “strictly” was used in front of the word “confidential” did not elevate the clause to a condition;
• The fact that there is a confidentiality clause in the agreement does not mean that confidentiality is “of paramount, or even major, importance to the parties”; and
• The fact that lawyers and ACAS were assisting the parties during the time the contract was entered into does not increase its importance or confidential nature.

Each case will come down to its facts and the wording of the settlement.  Where confidentiality is a condition of the agreement, a breach may well entitle the employer to withhold sums otherwise due.  Although in most settlement agreements, payment will be made by lump sum as opposed to instalments, this case is likely to impact future agreement drafting of confidentiality clauses.

In these difficult times, Settlement Agreement are more common particularly for reason of redundancy.  They allow employers to make enhanced payments and settle potential claims.  Used effectively, they allow both parties to professionally separate.   Employers are under pressure to effect change in unprecedented times but regard must be had for the impact of termination on employees.  The way a relationship ends is important.