Does an employee’s breach of a confidentiality clause in a COT3 entitle the employer to withhold the settlement payment? Not on the facts of the following case.
Relevant legal principles
Settlements negotiated by Acas are legally-binding contracts between the parties to settle actual or potential complaints to the employment tribunal. They are recorded on Acas form COT3. Employees can enforce a COT3 by way of a breach of contract claim in the county court. An employer can defend such a claim if they apply for and obtain a declaration that the sum is irrecoverable under the general law of contract.
S brought an employment tribunal claim against his former employer (Duchy). The parties reached a settlement negotiated through Acas and recorded on a COT3 form. Under the COT3, Duchy agreed to pay S £15,500 in instalments in full and final settlement of S’s claim and both parties agreed to treat the fact, and the terms, of the agreement as strictly confidential.
After paying £2,960, Duchy stopped further instalments after it discovered that S had breached the confidentiality clause by disclosing the fact, and the amount, of the settlement to a former work colleague.
S issued a claim in the county court to recover the balance of the settlement payment. Duchy defended the claim arguing that the outstanding sums were no longer recoverable by S because of his breach of the confidentiality clause.
Duchy’s right to stop making payments under the COT3 depended on whether the confidentiality clause amounted to a condition of the agreement or only a warranty. Conditions are the basis of any contract and if one of them is broken the aggrieved party can terminate the contract. These are in contrast to warranties, the other type of contract term, which are less important and will not usually lead to the breach of the contract but rather a payment of compensation.
County Court decision
The county court judge ruled that the confidentiality clause was not a condition of the contract, breach of which entitled Duchy to terminate the agreement. Its obligation to pay the instalments therefore continued, notwithstanding the breach of the confidentiality clause.
The High Court dismissed Duchy’s appeal.
The confidentiality clause was a generic clause, such as one sees almost as matter of course in a COT3. The fact that there is a confidentiality clause in a COT3 does not indicate that confidentiality is of paramount, or even major, importance to the parties. Confidentiality was not at the core of the agreement. The most important obligations of the contract were S giving up his tribunal claims and Duchy making payments in return. As a result, Duchy was not relieved of its obligation to pay the further instalments under the agreement.
Duchy Farm Kennels Limited v Graham William Steels  EWHC 1208 (QB)
While the case concerned the enforcement of a COT3, the decision should apply equally to settlement agreements.
It is possible for the parties to a contract to state expressly that a term is a condition (breach of which would entitle the wronged party to terminate the contract and claim compensation), but that did not happen here. There may well be cases in which a confidentiality clause in a COT3 or settlement agreement might be of sufficient importance to achieve the status of a condition, but in most cases of that nature, the agreement will expressly stipulate that the term is a condition.
Warning: this news item is not a substitute for legal advice. The information may be incorrect or out of date and does not constitute a definitive or complete statement of the law. This news item is not intended to constitute legal advice in any specific situation. Readers should obtain legal advice and not rely on the information in this article.