In an employment dispute, settlement documents often include a confidentiality and/or non-disparagement clause limiting what the parties can say about the dispute, the settlement, and each other. But what happens when a party breaches this clause? Is there a remedy for the employer? According to a recent decision[1] of the Human Rights Tribunal of Ontario (“Tribunal”), if properly drafted, these important clauses will be enforced, and a party may be required to return whatever settlement funds it received.
What happened in the recent decision?
An employee filed an application with the Tribunal against a former employer and colleague alleging discrimination in employment on the basis of sex. The parties engaged in mediation and arrived at a settlement that included a confidentiality clause and non-disparagement clause.
The confidentiality clause permitted the employee to respond to an inquiry about the resolution of the application, or conclusion of the employee’s employment, by simply stating, “all matters have been resolved.”
The non-disparagement clause required the parties to refrain from making any disparaging or derogatory comment about the other, or acting in a manner that would likely damage the other’s reputation, including on social media, unless required by law.
If the employee breached either clause, the employee would be required to pay back any funds paid under the settlement as liquidated damages (a pre-estimate of damages that provides certainty to the parties in the event of a breach).
Fast forward and the employee posted the following to their LinkedIn account: “To all those inquiring, I have come to a resolution in my Human Rights Complaint against [the former employer] and [the former colleague] for sex discrimination.”
When the employer discovered this post, it brought an application before the Tribunal alleging the employee had breached the settlement and seeking repayment of the settlement funds.
The decision
The Tribunal found the employee had breached both the confidentiality and non-disparagement clauses and ordered the employee to return the full amount of funds received under the settlement.
The confidentiality clause was breached because it imposed specific restrictions on how the parties could respond to any inquiry about the resolution of the application – “all matters have been resolved.” The employee’s LinkedIn post did not fit within this restriction because the post proactively communicated to a broad audience – not merely in response to those who inquired – and provided more detail than the confidentiality clause permitted, particularly including the reference to sex discrimination. Said the Tribunal: “The Applicant’s LinkedIn post does not fit within the spirit of the exceptions set out in the confidentiality provision and therefore the applicant’s posting breached the confidentiality clause.”
The non-disparagement clause was breached because the LinkedIn post connected the former employer and former colleague to serious and unproven allegations of discrimination on the basis of sex, creating the potential for reputational harm:
I am of the view that, from the perspective of an objective, reasonable person, placing such information on social media serves to publicize it and create a reputationally damaging link between the names of the parties and the serious unproven allegations of human rights violation of sex discrimination—precisely what the wording of the confidentially and non-disparagement clauses, taken together, was intended to prevent.
As for the liquidated damages, the Tribunal held the amount had been agreed to by the parties and was neither punitive nor a penalty clause:
As these damages are in a liquidated damages provision in a freely entered into contract agreed upon and executed by fully represented parties, they are damages consistent with the intentions of the parties and not punitive. The purpose of such provisions in contracts is to provide certainty and save the parties from having to prove damages, not to impose a punishment or a penalty.
Lessons for employers
In appropriate circumstances, a properly drafted confidentiality and/or non-disparagement clause can be a useful tool to protect an employer’s legitimate business interests. But remember these two things:
- In most cases, a properly drafted anything, requires the assistance of an experienced lawyer – in this case, an experienced employment lawyer. At the risk of this being a shameless plug, the marginal cost of legal advice today will be more than worth it down the road.
- While the thought of a former employee “lawyering up” may send shivers down an employer’s spine, sometimes the fact the employee had a lawyer to advise them through the termination process, means a court is more likely to enforce a settlement. This is because neither party will be seen to have had greater power than the other; both had legal advice.
To learn more and for assistance, contact your Sherrard Kuzz LLP lawyer or, if you are not yet our client, info@sherrardkuzz.com.
