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20 May 2020

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ACAS Conciliated Settlements – Can You Withhold Payment if an Employee Breaches a Confidentiality Provision?

Posted by: Sarah Scholfield

It is standard practice to include some form of confidentiality wording in an ACAS conciliated agreement or COT3 agreement. For some employers this will be a crucial part of the agreement whereas for others it may be an additional benefit on top of the main purpose of the agreement – which is to avoid tribunal claims. So what can an employer do if an ex-employee breaches a confidentiality provision in a COT3 agreement? Could they refuse to pay this individual? This was the issue before the High Court in the case of in Duchy Farm Kennels v Steels.

Facts of the case

Mr. Steels brought a number of claims in the Employment Tribunal against his former employer, Duchy Farm Kennels (“Duchy”). The parties reached a settlement with the help of an ACAS conciliation officer and the agreement was recorded on a COT3 agreement which was signed by both parties. The agreement provided for Duchy to pay Mr. Steels £15,500 by way of 47 equal weekly installments. Mr. Steels agreed that the payment was in full and final settlement of his claims and that he would not issue any other claims against Duchy. The COT3 agreement also included a number of other clauses that are commonly found in these types of agreements including a confidentiality clause which required both parties to keep the fact and terms of the agreement confidential and not to disclose them to any other person or entity save for a specified list.

Duchy paid just under £3,000 worth of instalments before stopping the payments as they discovered Mr. Steels had disclosed the fact of the settlement, including its value, to an ex-employee of Duchy in breach of the COT3 agreement. Mr. Steels issued a claim in the County Court for recovery of the outstanding sums under the COT3 agreement. He maintained that he had not made any disclosure and that, even if he had done, it did not amount to a breach sufficient to entitle Duchy to refuse to make any further payments to him.

The County Court found that Mr. Steels had indeed breached the confidentiality clause but that this did not amount to a repudiatory breach of the COT3 agreement that entitled Duchy to stop making payments to him. Under the terms of the COT3 agreement, payment of the settlement sum was not conditional on Mr. Steels’ compliance with the confidentiality clause and therefore breach of the clause did not allow Duchy to renege on its contractual obligation to continue making the weekly payments to him. Duchy appealed to the High Court.

Decision of the High Court

The key issue for the court was whether the confidentiality clause was a condition of the contract or an intermediate clause. If it were a condition, then any breach would absolve Duchy from any further duty to comply with its obligations under the contract. If it were an intermediate term, then Duchy would only be freed from its obligation to pay if the breach was so serious as to amount to a repudiatory breach of the agreement.

One the first issue, the High Court was clear that the confidentiality clause was not expressly stated to be a condition in the agreement and therefore they needed to consider if it could be implied that the clause was a condition. In their view it could not. Confidentiality was not “at the core of the agreement” and the most important aspect of the agreement from Duchy’s perspective was to pay Mr. Steels and thereby avoid any tribunal litigation.

In terms of the second issue, the court did not consider that Mr. Steels’ breach of the confidentiality clause did amount to a repudiatory breach. In the court’s view the breach was never likely to, and did not, result in any commercial embarrassment or other problems for Duchy and the risk that it would trigger expensive unmeritorious copy-cat claims was very remote.

Comment

This case is a very useful reminder of the importance of clearly identifying the key terms of any negotiated settlement. If confidentiality is very important in a particular case then there are two potential steps that can be taken to protect an employer in the event of any breach. The first would be to make specific provision in the agreement for what will happen if there is a breach of confidentiality for example requiring the ex-employee to repay all or some of the money they have already received. Secondly, an employer can insist that the COT3 wording specifies that the confidentiality clause is a condition of the agreement.

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Sarah is a Solicitor in our Employment Team with extensive experience advising employers on a wide range of employment matters and is also a member of the Employment Lawyers Association.

Sarah Scholfield - Associate

To discuss how Glaisyers can assist you contact Sarah Scholfield on Sarah.Scholfield@glaisyers.com or via 0161 832 4666.

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