Loose Lips Lead to Lost Cash

Written by Daniel Standing, LL.B., Content Editor, First Reference Inc.

Employers are no stranger to various forms of litigation like grievances, lawsuits and human rights complaints. Sometimes, these complaints proceed to a full hearing and decision, but not unfrequently, matters are settled by the parties without the need for a hearing. Usually, these settlements require the parties to keep the details confidential and not make any disparaging statements about the other party. A 2023 decision of the Human Rights Tribunal of Ontario, HRTO 1138 (CanLII) illustrates a remedy that might be open to the employer if the employee breaches these requirements. As the matter is governed by the rules of contract law, it will come as no surprise that the wording of the settlement agreement is paramount.

Background

The case stems from a sex discrimination complaint that led to mediation between the respondent and the corporate employer, which ended in a settlement agreement. The minutes of settlement included clauses on confidentiality and mutual non-disparagement. Fifteen months later, the respondent made a LinkedIn post announcing the resolution of a Human Rights Complaint against the corporate employer and another individual breaching these clauses, according to the applicants. The statement read, “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 employer said this violated the terms of the agreement, which specified that “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.” In the employer’s view, there had been no request, and the posted statements would harm its reputation. Plus, it said the employee’s post went too far.

Despite the applicants’ requests, the respondent initially did not remove the post, arguing it didn’t violate confidentiality, was truthful and fell within the scope of permissible disclosure outlined in the settlement. They believed their post was ambiguous and intended to address potential inquiries while being neutral.

The respondent eventually revised the post but disputed the breach, stating they felt pressured to erase their experience. Whether the breach occurred was a very material fact since, under the contract, if the employee breached their obligations respecting confidentiality and non-disparaging comments, they would be required to repay the settlement money as liquidated damages.

The Tribunal’s decision

The Tribunal began its decision by surveying the legal landscape surrounding the interpretation of a settlement agreement, emphasizing contract law principles, party intentions and the duty of good faith. As to whether the post violated the settlement agreement, key points were said to include analyzing the full agreement, considering the factual context and assessing the post’s impact on the other party’s reputation. The discussion highlights the need to balance contractual obligations, including confidentiality and non-disparagement, with the rights of parties to express themselves within the agreement’s confines.

The tribunal found that the LinkedIn post breached the confidentiality clause because it exceeded the permitted disclosure, which was limited to stating that “all matters have been resolved” upon inquiry. The respondent’s interpretation, allowing broader disclosure, was deemed inconsistent with the agreement’s plain language and would potentially damage the other party’s reputation. By attaching specific details about “sex discrimination” and naming both parties involved, the post went beyond the intended scope of permissible disclosure. This interpretation was also deemed inconsistent with the principle of good faith and the contract’s internal consistency.

It was more of the same with the non-disparagement clause, which was, in the Tribunal’s view, violated because it would be objectively reasonable to foresee the possibility of damage to the other parties’ reputations by publishing such prejudicial allegations on social media.

Lastly, the Tribunal granted the employer a remedy of liquidated damages, as outlined in the settlement agreement. It found liquidated damages to be consistent with the parties’ intentions and explained how they serve to provide certainty in enforcing contractual obligations. The Tribunal rejected arguments of unconscionability, noting the absence of unequal bargaining power and the agreement’s fair terms. Additionally, liquidated damages were deemed appropriate, given the inherent difficulty in quantifying reputational harm and the importance of upholding confidentiality in human rights settlements. Of key importance, the clause was found not to be punitive but rather a mechanism to enforce the settlement’s core requirements.

Elaborating on the point, the Tribunal said punitive clauses aim to penalize rather than compensate, putting the plaintiff in a better position than if the contract were performed. In this case, the liquidated damages were equal to the settlement payment made by the employer to the employee. Enforcing the clause merely restored the applicants to their pre-payment position. Since the damages did not confer an undue benefit and were directly linked to the breach of primary obligations, they were not disproportionate or punitive. For that reason, the Tribunal found the clause enforceable.

Key takeaways

Settlement agreements must use precise language to delineate the permissible scope of disclosure, preventing ambiguity and misinterpretation. By clearly defining the boundaries of confidentiality and non-disparagement, employers can mitigate the risk of breaches and uphold the integrity of the agreement. Clarity of language ensures that all parties understand their obligations and reduces the likelihood of disputes arising from differing interpretations of the contract’s terms, ultimately fostering trust and co-operation between parties. Additionally, specifying liquidated damages in the event of a breach provides a clear consequence, facilitating efficient resolution and discouraging violations.