Can an employee's breach of confidentiality entitle an employer to cease payments under a settlement agreement?
No, not unless the confidentiality clause is genuinely a condition of the agreement or the employer is able to show that the breach of the confidentiality provision is repudiatory.
In Duchy Farm Kennels Ltd v Steels, the High Court found that a former employee's breach of a confidentiality clause in an ACAS conciliated settlement agreement did not entitle Duchy Farm to cease settlement payments which had been provided for in the agreement, as it was not a condition. The confidentiality clause was an immediate term and the breach was not so serious as to amount to a repudiatory breach. It therefore dismissed the employer's appeal.
Summary of the case
Mr Steels brought employment tribunal claims against Duchy Farm. The parties agreed a settlement agreement with the assistance of ACAS which was recorded in a COT3 form. In accordance with the terms of the agreement, Duchy Farms agreed to pay Mr Steels the sum of £15,500 in instalments in full and final settlement of his employment tribunal claims.
The agreement included a clause under which the parties agreed to treat the fact and terms of the agreement as strictly confidential. It also contained a warranty that Mr Steels had not previously disclosed the facts and terms of the agreement to any other person and a mutual non-disparagement clause.
Duchy Farm paid Mr Steels £2,960 in a series of instalments with the last payment paid on 29 March 2019. However, it did not pay any further instalments on the basis it was under no obligation to do so as Mr Steels had breached the confidentiality clause by disclosing the fact, and the amount, of the settlement agreement to a former colleague, Mr M.
Mr Steels issued proceedings in the County Court. Duchy Farm defended them on the basis that because of the breach of the confidentiality clause, the outstanding sums were no longer recoverable. The judge found that the disclosure to Mr M did not cause commercial harm to Duchy Farm. The judge accepted that it created a risk that other employees might be encouraged to bring claims in the hope of settlement. However, in those circumstances, Duchy Farms could bring a claim for damages. The judge found:
- The confidentiality clause was not a condition of the contract meaning the breach did not automatically give Duchy Farm a right to bring its contractual obligations to an end.
- It was an immediate term and the breach did not go to the root of the contract and was not therefore a repudiatory breach entailing Duchy Farm to treat itself as discharged from any further obligation to pay the instalments.
- The judge also held that the breach did not mean that Mr Steels had renounced the contract such that a reasonable observer would reasonably conclude that he was no longer bound by it.
Duchy Farm appealed.
The High Court observed that there were two routes by which Duchy Farm could establish that Mr Steel's confidentiality breach meant that it was no longer obligated to continue to pay the instalments:
- To establish the confidentiality clause was a condition. However, the confidentiality term in the agreement was not held to be a condition. It was an immediate term. The existence of a confidentiality provision in an employment settlement agreement did not indicate that confidentiality was of paramount, or even major, importance.
- To show the breach of the confidentiality clause was repudiatory. The relevant test was whether, from the perspective of a reasonable person in the position of Duchy Farm, Mr Steels had ‘clearly shown an intention to abandon and altogether refuse to perform the contract’. The Judge had been correct to find that this test had not been met. The High Court found the breach did not result in any commercial embarrassment or other commercial problems for Duchy Farm and the risk of copy cat claims was very remote, particularly as the sums involved were relatively low.
The High Court dismissed the appeal.
In this case the High Court found that the most important obligations of the settlement agreement were Mr Steels giving up his tribunal claims and Duchy Farm making payments in return, and this is often the case in most employment settlement agreements. It also noted that confidentiality clauses tend to be generic and almost matter of course in these types of agreement.
However, if confidentiality is of significant importance to an employer, for example if confidentiality is the significant benefit that the employer is getting under the settlement (rather than avoiding a tribunal claim), it may want to consider expressly stipulating that confidentiality is a condition of the agreement and potentially make provision in the agreement for what should happen if there is a breach. However, labelling the term a 'condition' does not automatically make it one, and there may be tax implications in doing so. It is therefore important to take legal advice. Whilst this case concerned the enforcement of an ACAS conciliated settlement agreement, the same principles will apply to settlement agreements.