If an employee is responsible for a breach of settlement agreement (see our article here for more details), can an employer refuse to pay the agreed sum?
A recent case from the High Court helps to answer the question, and we discuss it below.
Once a settlement agreement has been agreed and signed by both parties, it is a legally binding contract like any other. For example, if the employer fails to pay the settlement sum, the employee has a court claim for breach of contract. If the employee who has caused a breach of settlement agreement should bring a claim to the court/tribunal, the employer is entitled to raise the breach of settlement agreement as a defence to the claim.
The usual remedy for a minor breach of contract is for the wronged party to pay for the damages for any loss suffered. Serious breaches of contract entitle the wronged party to tear up the agreement. The problem is that by this time, the employee’s time limit to bring a claim may have expired, which is catastrophic for the claim. Settlement agreements usually contain a clause saying that the employer is not required to pay the sum of money if the employee is in breach of the agreement (for example, by breaching the confidentiality clause or ‘gagging clause’).
The High Court explored how these rules fit together in a recent case called Duchy Farm Kennels Ltd v William Steels. In this case, Mr Steels brought tribunal claims against his employer and settled them through Acas for over £15k. As is standard, the agreement included a confidentiality clause in the boilerplate (that is, as one of many standard clauses in the template). More unusually, the money would be paid in instalments over the next year.
After paying instalments amounting to some £3,000, the employer discovered that Mr Steels had told a former colleague about the settlement, which breached the confidentiality clause. They discontinued the instalments.
Mr Steels issued a County Court claim for the rest of the settlement sum, which the employer defended on the basis that breaching the confidentiality clause was a serious breach of contract entitling it to tear up the agreement. In legal terms this is called ‘repudiating the contract’. The County Court judge found that telling the former employee had not harmed the business commercially, so it wasn’t serious enough to allow him to repudiate. The employer appealed to the High Court.
The High Court decided that since the agreement did not expressly state whether it was a ‘condition’ (a clause so important that any breach entitles the wronged party to tear up the agreement) and since the breach did not cause any loss, such as commercial embarrassment, the employee won his claim for the rest of the £15k.
A confidentiality clause in a confidentiality contract such as a non-disclosure agreement will always amount to a ‘condition’. But realistically, a confidentiality clause which is in the boilerplate clauses of another agreement is never going to amount to a ‘condition’.
So if an employer is to successfully withhold money from an employee for breach of settlement agreement by say, posting about the agreement on Facebook, it will not succeed unless it has suffered real embarrassment or a cost to sort out at the employer’s business. For example, a slew of claims from staff, or grievances, industrial unrest, a lost contract or negative media coverage.
If the employer has already paid the money due under the settlement agreement, it might sue the employee for its return.
We have in fact dealt with several instances of employers refusing to pay out because of breach of settlement agreement in recent years, so this is something that does happen from time to time.
By Khushi Kaur
Image used under CC courtesy of KOMUnews.