Breaching confidentiality of settlement agreements can be costly

Confidentiality provisions have crept into the spotlight recently, as evidenced when former Globe and Mail writer Jan Wong was ordered to repay her settlement after breaching a confidentiality agreement with the newspaper.

To discourage the disclosure of settlement details 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 in 1991, the Ontario Labour Relations Board summarized the purpose of these provisions as follows: 

“The employer’s fear is that the disclosure of such a payment, apart from the amount of the payment, might alone undercut the efficacy of the denial of liability, and might also lead other employees or unions to file further complaints, in the belief that the employer will settle such complaints with cash.” 

A settlement agreement is like any other contract — and a contract can provide for consequences if one party breaches the contract. If a contract does not set out the employer’s remedy in the event of a breach, it must be determined by the arbitrator or judge.

In the Nov. 3, 2014, decision of Jan Wong v. The Globe and Mail Inc., the Ontario Superior Court upheld the arbitrator’s decision that Wong’s book, 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. The agreement provided that Wong was required to repay $209,912 if she breached the confidentiality provision. 

At the hearing, Wong maintained it was her belief she was permitted to disclose the fact she had received a payment from the Globe and Mail, but was prohibited from revealing the specific amount she was paid.  

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

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

Wong also unsuccessfully argued the repayment clause was, in fact, a “penalty” clause and 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 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. 

In dismissing Wong’s argument that the agreement was unconscionable, the arbitrator stated: 

“I agree that it appears to be one-sided but find that there is nothing wrong or inherently unfair for one party to say, ‘I will make a payment to you but you must agree not to disclose that fact, and if you do disclose it, you must give back the payments made.’ In the circumstances of this case, those terms were an integral part of the agreement.” 

A similar case, Gulliver Sch., Inc. v Snay, was decided in Florida in February 2014. The former headmaster of a private school, Snay, reached a settlement with his former employer, Gulliver, 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 that prohibited Snay from disclosing the terms of the settlement to anyone, with limited exceptions, and breach of this provision would result in the repayment of the money received by Snay. 

The Florida Third District Court of Appeal held that Snay was no longer entitled to receive the US$80,000 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 ultimately did not receive the confidentiality that was bargained for. As an employer, it is important to be certain former employees understand what constitutes a breach of confidentiality. 

In Barrie Police Services Board v. Barrie Police Association in 2013 in Ontario, a former employee breached the confidentiality provision of a settlement agreement. In this case, the agreement did not set out any consequences for a breach. 

Nevertheless, the arbitrator 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 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: 

•Include a provision that sets out the consequences for a breach of the confidentiality provision. 

•Have a lawyer review the confidentiality clause to ensure the consequences for a breach will be construed as a reasonable enforcement mechanism and not a penalty clause (the latter of which would require proof of damages).

•Ensure that the former employee obtains independent legal advice throughout the negotiation process and there is evidence the former employee understands the terms of the settlement. 

•Ensure that the confidentiality clause is specific and addresses the types of situations that would constitute a breach.