UK – Settlement agreements: breach of confidentiality clause

Mr Steels brought a claim against Duchy that was subsequently settled. Under the COT3 (a settlement agreement used to settle an employment tribunal claim), Duchy agreed to pay him £15,500 in 47 weekly instalments of £330 in full and final settlement of his tribunal claims. There was a confidentiality clause that required Mr Steels not to disclose the fact and terms of the agreement, as well as a warranty that he had not already done so. Within a couple of months, after discovering he had disclosed the fact and amount of the settlement payment to a former colleague, Duchy stopped making the weekly payments. Mr Steels brought a claim to recover the unpaid sums.

The County Court ruled that the confidentiality clause was not a condition of the contract – a provision that is central to the agreement that would give the other party the right to end the contract if breached. So Duchy was obliged to continue making the payments.

On appeal, the High Court agreed the clause was not a condition – it was a generic clause that was included in employment settlement agreements “almost as a matter of course”. But the Court said that there were circumstances in which a confidentiality clause may amount to a condition.

Practical point:
This decision serves as a warning that the breach of a confidentiality clause may not justify the non-payment of settlement payments if the clause is not a condition, i.e. central to the agreement.

Employers should consider adopting the following solutions, suggested by the Court, to seek to make a confidentiality clause enforceable – expressly state in the agreement:
• what should happen if there is a breach of confidentiality
• that the relevant clause is a condition of the contract.

Duchy Farm Kennels Limited v Graham William Steels [2020] EWHC 1208