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Breaching confidentiality provisions of a settlement agreement can cost you!

secret-shhTo discourage the disclosure of details of settlements to third parties, confidentiality provisions are often included in settlement agreements between an employer and a former employee. In Northfield Metal Products Ltd. v Parsons (1991), the Ontario Labour Relations Board stated that the purpose of confidentiality provisions is to protect the value of the settlement to the employer. Even if the specific amount of the payment is not revealed, the disclosure that a payment was made could diminish the employer’s denial of liability and expose it to complaints from further employees.

In the November 3, 2014 decision of Jan Wong v The Globe and Mail Inc., the Ontario Superior Court upheld the arbitrator’s decision that Ms. Wong’s book entitled “Out of the Blue” contained language that breached the confidentiality provision of her settlement agreement with her former employer, the Globe and Mail. The court also upheld the arbitrator’s decision to enforce the consequences of the breach, as set out in the settlement agreement. As a result of Ms. Wong’s breach, she was required to repay $209,912.00 to her employer.

At the hearing, Ms. Wong maintained that it was her belief that she was prohibited only from revealing the specific amount that she was paid.
Ms. Wong’s book included the following phrases:

“…I can’t disclose the amount of money I received.”

“I’d just been paid a pile of money to go away…”

“Two weeks later a big fat check landed in my account.”

“Even with a vastly swollen bank account…”

The confidentiality provision provided that the parties agreed “not to disclose the terms of this settlement.” The court found that the above phrases constituted a breach, since they made it clear that Ms. Wong received a payment from the Globe and Mail.

Ms. Wong also unsuccessfully argued that the repayment clause was, in fact, a “penalty” clause and that in the circumstances of this case, it would be unfair and unconscionable to require her to repay the funds to the Globe and Mail. The arbitrator found that the settlement agreement was freely entered into by experienced and sophisticated parties. There was evidence that Ms. Wong understood the terms of the settlement. In addition, she had months to negotiate and consider its terms and she was represented by an experienced labour lawyer.

A similar case, Gulliver Sch., Inc. v Snay (In PDF), was decided in Florida in February 2014. The former headmaster of a private school, Snay, reached a settlement with his former employer, Guiliver, regarding a discrimination lawsuit. Within days of the parties reaching a settlement, Snay’s daughter updated her Facebook status to say:

Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”

In this case, the settlement agreement also included a confidentiality provision which prohibited Snay from disclosing the terms of the settlement to anyone, with limited exceptions, and that the breach of this provision would result in the repayment of the money received by Snay. The Florida Third District Court of Appeal concluded that Snay was no longer entitled to receive the $80,000.00 payment in accordance with the settlement agreement due to the breach of the confidentiality clause.

While it may appear that the employers “won” the Jan Wong and Gulliver cases, the employers arguably did not receive the confidentiality that was bargained for. As an employer, it is important to be certain that the former employee understands what constitutes a breach of the confidentiality provision.

In Barrie Police Services Board v. Barrie Police Association, 2013 (ON LA), a former employee breached the confidentiality provision of a settlement agreement. In this case, the settlement agreement did not set out any consequences for a breach. The arbitrator nevertheless ordered the former employee to repay the money he received under the settlement. The arbitrator concluded that the former employee had deliberately breached the confidentiality provision and found that this remedy was necessary to act as a deterrent for similar future breaches.

To strengthen the effectiveness of the confidentiality provisions in settlement agreements, employers should consider the following:

  1. Include a provision that sets out the consequences for a breach of the confidentiality provision.
  2. Have a lawyer review the confidentiality clause to ensure that the consequences for a breach will be construed as a reasonable enforcement mechanism, and not as a “penalty” clause (the latter of which would require proof of damages).
  3. Ensure that the former employee obtains independent legal advice throughout the negotiation process and that there is evidence that the former employee understands the terms of the settlement.
  4. Ensure that the confidentiality clause is specific and addresses the types of situations which would constitute a breach.

By Marty Rabinovitch and Joanne Schiffer (Student-at-Law)

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Devry Smith Frank LLP

Employment and labour lawyers at Devry Smith Frank LLP
Devry Smith Frank LLP (DSF) is the largest full service law firm in Toronto outside of the downtown core. They offer a broad range of legal services to individual, business and corporate clients in most areas of corporate and personal law. Their firm’s employment law group covers a broad spectrum of HR law, including employment and labour law, occupational health & safety, human rights, workers’ compensation and much more.Lawyers at Devry Smith Frank LLP lead by Marty Rabinovitch B.A.H., LL.B. will be covering issues surrounding employment and labour law and human rights on First Reference Talks. They also provide training, seminars and conferences on the above topics. Read more .
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