Settlement Agreements: High Court holds that breach of confidentiality clause within COT3 did not bring the agreement to an end - Duchy Farm Kennels Limited v Graham William Steels

The High Court has held that a confidentiality clause within a COT3 was not a condition of the agreement, but rather a ‘generic clause’. The employer was not therefore able to terminate the agreement following a breach of this clause.

The employee and employer in this case agreed a settlement through ACAS which was recorded on a COT3 form. In line with the purpose of a COT3 settlement agreement, the employer agreed to pay the sum of £15,500 in 47 weekly instalments of £330. In return, the employee agreed to waive his rights to pursue any employment tribunal claims against his former employer. The agreement also included a confidentiality clause requiring the employee not to disclose any details about the agreement.

The employer ceased making payments after discovering that the employee had disclosed the fact and amount of the settlement to a former colleague. The employee began proceedings to reclaim the unpaid sums.

The County Court held that the confidentiality clause was not a condition of the contract, but an intermediate term. A breach of this clause could not therefore give rise to the right of the other party to end the contract and the employer was required to continue making the payments. This decision was appealed to the High Court.

The High Court upheld the decision of the County Court and dismissed the appeal. The confidentiality clause in the COT3 was not a condition of the agreement, its breach could not therefore bring the agreement to an end. It held that this clause was instead a generic clause included as a ‘matter of course’ and despite it being included as a clause, confidentiality was not at the core of the agreement or of any importance to the parties. The core terms were instead the employee waiving their right to bring employment proceedings and the employer making payment of the agreed amount in return.

The High Court went onto highlight the circumstances in which a confidentiality clause could amount to a condition and therefore bring the agreement to an end if it is breached. Such circumstances include when the parties explicitly state a confidentiality clause as a condition and explicitly state the consequences of such a breach, such as a right for the innocent party to terminate the contract.

After establishing the confidentiality clause was not a condition of the contract, the High Court moved on to decide whether this was a repudiatory breach of an intermediate term. The relevant test was whether, from the perspective of a reasonable person in the position of the innocent party, the employee had "clearly shown an intention to abandon and altogether refuse to perform the contract.” It was concluded that this test was not met and the employer remained under the obligation to continue making payments under the agreement.

The decision highlights the importance of expressly stating confidentiality clauses as a condition of the agreement as well as any enforcement mechanisms, particularly if you intend to cease payments in the event of such a clause being breached. This will be especially important if confidentiality is a key business need or the former employee worked with sensitive information.

The principals from this case are also applicable to non-COT3 Settlement Agreements.