Terms of settlement and confidentiality clauses in employment law claims

Typically, when employment law related disputes are brought in the Industrial Tribunals or the Fair Employment Tribunal, they will often be settled through the intervention of the Labour Relations Agency via what is known as a CO3 settlement agreement. Employers, in agreeing such terms of settlement, will often ask the employee to agree to keep the fact and terms of the settlement confidential, but what happens if the employee breaches such a clause, can an employer avoid paying the compensation?

What happens if an employee breaches confidentiality in a settlement agreement?

The issue has been addressed recently in England, in the case of Duchy Farm Kennels v Steels. Here, the equivalent of a CO3 (a COT3 drawn up by the Great Britain equivalent to the LRA, ACAS) contained a confidentiality clause that was allegedly breached by the former employee, with the employer then refusing to pay the weekly instalments of compensation it had agreed to in settling the tribunal proceedings as a consequence of the alleged breach of contract by the former employee.

A County Court and then the High Court in England held that the employer, in this case, 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 - a breach of which would automatically give the other party a right to bring the contract to an end - it was only an ‘intermediate’ term. There was no repudiatory breach going to the root of the contract, which would be necessary before the employer would have been entitled to treat itself as being discharged from having to continue to pay the remaining instalments of the compensation.

Had the confidentiality clause not been a standard generic term common to CO3s rather an expressly drafted condition of the terms of settlement, the employer might have been able to avoid continuing making the payments due following a breach. In this case, however, there was no such express provision and even if there was such a clause labelled as a ‘condition’, this would not automatically make it one.

Courts will consider what was of fundamental importance to the parties in entering into the terms of settlement and, in this case, there was no suggestion of confidentiality being of significant commercial importance to the employer undermining the suggestion that it was a condition of the terms of settlement.

This case is likely to result in employers drafting ‘tighter’ conditions of settlement and/or making specific provision for recovering damages in the event of a breach of confidentiality by claimants in tribunal proceedings.

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