D-BRIEF – Employment & Pensions Blog: Confidentiality as a COT3 condition

In Duchy Farm Kennels Limited v Graham William Steels, the High Court held that a breach of a confidentiality clause in a COT3 agreement was not a condition of the agreement and therefore its breach did not bring the agreement to an end.

In Duchy Farm Kennels Limited v Graham Williams Steels, a COT3 agreement was entered into between an employer and its former employee. As part of the agreement between the parties, it was agreed, amongst other things, that in exchange for a sum of money (which was to be paid in instalments by the employer), the employee would waive his rights to pursue any complaints relating to his employment and/or its termination (the main purpose of a COT3).

The employee also agreed to abide by certain confidentiality provisions. The employer eventually ceased making payments as required under the agreement since it considered that the former employee had breached the agreement by divulging information about the settlement to another former employee allowing it to bring the agreement to an end. The employee sued to recover the balance of the money due under the COT3.

The High Court found that a breach of this particular clause did not, in this case, warrant the right to treat the COT3 as having terminated. It found the drafting of the clause “generic” in nature and ruled that it did not constitute a fundamental part of the agreement. On the Judge’s analysis of the COT3, he further found that its core elements were the waiver of claims by the employee and the payment clause. Since the confidentiality clause was not a fundamental part of the COT3, and payment had not been made conditional on compliance with the confidentiality provision, the COT3 was still in force and the employer was not released from its obligation to keep paying.

Generally, confidentiality clauses are a standard part of COT3 agreements and settlement agreements. There is often some degree of mutuality i.e. the employer is also agreeing to keep the terms confidential, although employers need to be careful about what they commit themselves to in case it proves impossible to police (e.g. “The Employer will not make or publish…”) or creates uncertainty as to what action needs to be taken (e.g. “The Employer will use best/reasonable endeavours to…”). They have come under particular scrutiny in the #MeToo climate and legislation will be introduced in due course to make it part of a solicitor’s role when advising an employee on a Settlement Agreement to specifically advise as to the scope of any confidentiality obligations so that employees do not believe themselves gagged by clauses which would actually be unenforceable if tested.

However the Duchy case was specifically about the importance of the confidentiality clause within the COT3 as a whole and therefore what remedy/recourse the employer had if it was breached. Essentially, if the employer wanted to be able to stop payments in the event of a breach of confidentiality then that should have been made clear within the COT3 itself. The employer’s only remedy in this case was to sue for breach of contract for the loss suffered as a result of the confidentiality breach (which would likely be very difficult to quantify).

This case gets slightly into the technicalities of contract law about the difference between conditions and other contract terms (i.e. when does breach allow termination) but the key message for employers is to think about the obligations you are placing on employees and what you would want to be able to do if those obligations were breached. If confidentiality is of crucial importance to your business, tailored confidentiality wording needs to be incorporated in the agreement, coupled with carefully drafted enforcement mechanisms in the event of a breach.

If the agreement is already entered into but you as employer are now considering taking action for some sort of breach then it cannot be assumed that the breach will render the rest of the agreement void. Further advice should be sought before you consider your organisation to be released from its own obligations, not least because it will often be the case that such disputes can be resolved amicably and more cost effectively.

For more information, please contact your usual contact in our Employment and Pensions Team.

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