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Home / News and Insights / Blogs / Employment Law / 259: Employer liable to make full payment under COT3 settlement agreement despite ex-employee’s breach of confidentiality clause

A ‘condition’ is a fundamental term of a contract which goes to the heart of the agreement between the parties. Breach of a condition allows the wronged party to terminate the contract and claim damages. In Duchy Farm Kennels Ltd v Steels, the High Court held that a confidentiality clause in a COT3 agreement was not a condition. This meant that the employer had to continue paying instalments under the agreement even though the ex-employee had breached the confidentiality clause.

Following termination of Mr Steels’ employment, he agreed a COT3 settlement with Duchy Farm Kennels through Acas. Duchy Farm Kennels agreed to pay him £15,500 in 47 weekly instalments. In addition to the usual waiver of claims, the COT3 also included a standard confidentiality clause requiring Mr Steels not to disclose any details of the agreement except as required by law or regulatory authorities, or to professional advisers.

Duchy Farm Kennels later discovered that Mr Steels had disclosed the fact and amount of his settlement to a former colleague and stopped paying the instalments. Mr Steels brought a claim in the County Court for the unpaid amounts.

The County Court held that the confidentiality clause was not a condition of the agreement and therefore the payment of the sums under the agreement was not conditional on Mr Steels’ compliance with the confidentiality clause. Neither did the County Court consider that Mr Steels’ actions amounted to a repudiatory breach of the agreement. As a result, the employer was liable to pay the outstanding sums. Duchy Farm Kennels appealed to the High Court.

The High Court upheld the County Court’s decision. In this case, the confidentiality provision was a standard clause which had been included as a matter of course. Confidentiality was not at the core of the agreement, nor had it been important to the parties. The key terms were the waiver of claims and the termination payment in return. Since the confidentiality clause was not a condition of the agreement, its breach did not bring the agreement to an end and Duchy Farm Kennels therefore remained liable to continue paying instalments under the agreement.

The outcome of this case might have been different if the employer had been able to show that the allegations in question or the identities of any of the parties involved were sensitive, or that there was a significant commercial risk if confidentiality was breached. Employers who have a particular concern about confidentiality should ensure that the drafting of any COT3 or settlement agreement reflect this. It is advisable to state expressly that a confidentiality clause is a condition of the agreement and to state the consequences of any breach. For example, termination payments can be made conditional on the employee complying with all the terms of the agreement, and repayment can be required if there is a breach of the confidentiality clause.

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