Confidentiality Clauses in Settlement Agreements: What You Need to Know

Confidentiality clauses are a standard feature of settlement agreements. These clauses impose a duty on both employers and employees to keep to the terms of the settlement, along with details about the dispute or termination, private. Their purpose is to protect sensitive information, safeguard reputations, and support a smoother transition after the employment relationship ends.

This article explores the key aspects of confidentiality clauses, their implications, and what happens if they are breached.

What Duties of Confidentiality Can You Expect?

Employees often gain access to sensitive information or trade secrets during their employment. Settlement agreements typically include clauses requiring employees to keep this information confidential to protect the employer’s business interests.

In addition to protecting business information, employers commonly require confidentiality about the circumstances of the dispute and the terms of the settlement (including termination payments). Limited exceptions usually apply, such as disclosing details to immediate family (who must also keep them confidential), professional advisers, or legal authorities.

Confidentiality clauses also help protect the reputations of both parties. Employers often include provisions that prohibit derogatory or defamatory remarks. These clauses may be supported by an agreed announcement that provides a mutually acceptable narrative about the employee’s departure. Such announcements are typically annexed to the agreement and can be communicated via email or read aloud to staff, reducing speculation or gossip.

Employees are also usually required to return all confidential information and company property, whether in electronic or physical form, before their termination date. A statement confirming compliance may be requested. Additionally, post-termination restrictions, such as non-compete or non-solicitation clauses, may be reiterated in the agreement.

What Are the Restrictions on Confidentiality?

While confidentiality is paramount, settlement agreements outline certain actions that do not breach this obligation. These include:

• Making a whistleblowing disclosure
• Reporting a suspected criminal offence
• Complying with legal requirements, such as a court or tribunal order or an HMRC inquiry

What Happens If a Confidentiality Clause Is Breached?

A breach of confidentiality in a settlement agreement can have serious consequences. The wronged party may pursue a claim for breach of contract and seek damages to compensate for any loss. Legal costs incurred by the breach may also be claimed.

If an employee breaches a confidentiality clause, the employer could withhold any ex-gratia payments due under the agreement or demand reimbursement if the payment has already been made.

Conclusion

Confidentiality clauses are an essential part of settlement agreements, protecting the interests of both parties. By maintaining discretion, these provisions safeguard sensitive information, uphold reputations, and foster a respectful separation. Employers and employees should fully understand the scope and limitations of these clauses to prevent unintended breaches.

Ultimately, a well-drafted confidentiality clause ensures a smoother resolution and a mutually respectful conclusion to the employment relationship.

Get in Touch

For expert advice on settlement agreements or assistance with your matter, contact our Employment Litigation team at Warner Goodman LLP. Our experienced solicitors can provide tailored guidance to help you achieve the best possible outcome. Call us on 023 8063 9311 or email enquiries@warnergoodman.co.uk.