Breach of confidentiality proves to be a costly mistake

When parties to a workplace dispute agree on a settlement, one typical term required by employers relates to confidentiality. Such clauses mandate that the employee refrain from telling third parties details of the deal that has been reached (with normal exceptions made for immediate family and professional advisers).

Confidentiality goes hand in hand with another common settlement term - an explicit denial of wrongdoing or liability. The combined effect of such clauses in settlement agreements are: 1) they help prevent unrelated persons from using the details of any particular settlement to their advantage in future negotiations (i.e. ‘you paid Joey X dollars, so I want the same’); and 2) they limit reputational damage stemming from the dispute and its resolution (by keeping details to a minimum).

For most employers, confidentiality is therefore a fundamental term of settlement. And these clauses are not without teeth. Should an employee breach confidentiality of settlement, they can and should expect employers to respond.

HRTO orders repayment of settlement funds

A recent decision from the Human Rights Tribunal of Ontario (“HRTO”) provides a cautionary example of what can happen when settlement confidentiality is breached.

In L.C.C. v. M.M., 2023 HRTO 1138, an application to the HRTO had been made against a corporate and individual respondent alleging sex discrimination in the course of employment. All parties to the proceeding were represented by legal counsel.

Following mediation, a settlement agreement was reached. In exchange for a payment to the employee, they were required to sign Minutes of Settlement which contained the following terms:

Confidentiality: The Applicant may disclose the terms of these Minutes of Settlement to [their] immediate family, legal and financial advisors, on the condition that they also agree to maintain strict confidentiality of these Minutes of Settlement. Upon inquiry by any person about the resolution of the Application or conclusion of the Applicant’s employment with [the applicant corporation], the Applicant shall simply state that all matters have been resolved. The Applicant will make no mention of, or allude in any way whatsoever to, the receipt of money or the amount of money received from [the applicant corporation] in this Settlement.

Mutual Non-Disparagement: The parties agree that the purpose of this Settlement is to resolve any issues the Applicant has with the Respondents on a confidential basis and without any disparagement of the parties. Accordingly, the parties agree to refrain from making any oral, written or electronic communications about each other that are untrue, defamatory, disparaging, or derogatory, or acting in any manner that would be likely to damage the opposite party’s reputation in the eyes of customers, regulators, the general public, or employees, unless required by law. This non-disparagement includes but is not limited to any electronic communications through social media (such as Facebook, Twitter, Instagram, Youtube, Snapchat, etc.).

Breach: The Applicant agrees that if [they breach] any of the obligations under this Settlement, and in particular the confidentiality obligation set out in paragraph 7 and the non-disparagement obligation in paragraph 8, above, [they] will be required to repay to the [corporate] Respondent the Settlement Payment paid to [them] under paragraph 2 of these Minutes of Settlement as liquidated damages, and will be responsible for any additional damages incurred by the [corporate] Respondent.

Approximately 15 months later, the employer learned that the employee had posted the following statement on their LinkedIn account: “To all those inquiring, I have come to a resolution in my Human Rights Complaint against [the applicant corporation] and [the individual applicant] for sex discrimination.”

The employee was then contacted by the employer about their social media posting and asked to take it down. The employee did not respond but later reposted the same message with slightly different language. As a result, both the employer and individual respondent brought a Contravention of Settlement application to the HRTO, alleging that the employee had breached the parties’ settlement agreement via their social media postings.

In deciding the matter, HRTO Member Inbar had little difficulty in determining that the employee had breached their settlement obligations:

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 [sic] and non-disparagement clauses, taken together, was intended to prevent.

The HRTO next considered the issue of remedy, and whether repayment of the settlement funds should be ordered as outlined in the parties’ settlement agreement. The employee attempted to frame the “Breach” provision as a punitive measure and urged the HRTO to reject its application. Member Inbar disagreed with this characterization, finding instead:

…the respondent agreed to carry out the primary obligations…spelled out in the non-disparagement and confidentiality clauses. As the primary obligations were not fulfilled by the respondent, enforcement of the clause would not put the applicants in a better position than would have been occupied on performance of the contract and would not confer a benefit out of proportion to the benefit that would have been received if the primary obligations had been fulfilled. Re-payment to the applicant of the liquidated payment would simply put the applicants back in the position than [sic] they occupied before paying the amount to the respondent. Accordingly, I do not find the liquidated damages clause to be a disguised penalty clause or to be punitive, and find it to be enforceable. [emphasis added]

As a result, the HRTO ordered the employee to repay the settlement monies in full. It was further ordered that the employee must continue to comply with the remaining terms of the Minutes of Settlement. This effectively meant that, due to their breach of confidentiality and non-disparagement obligations, the employee had lost the very thing they had settled their case to obtain.

Takeaways

The decision in L.C.C. v. M.M. emphasizes the importance of employers including clear and proportional confidentiality provisions in their settlement agreements. The use of such language in L.C.C. v. M.M. provided the employer with a strong basis to both enforce its terms of settlement and seek an impactful remedy when the employee breached their part of the deal.

In crafting confidentiality provisions, however, employers should be mindful of potential future legislative developments. Recent news reports indicate that Ontario is considering banning non-disclosure agreements related to alleged instances of workplace sexual harassment, misconduct, or violence. Depending on the details of any such new legislation, employers will be required to examine their default terms of settlement and ensure they fully comply with statutory restrictions affecting workplace-related confidentiality and non-disparagement obligations.

This article was originally published on November 10 2023 at First Reference Talks.

Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.