A COT3 agreement will usually be entered into where an ACAS conciliator has assisted an employer and employee to negotiate the terms of a settlement. This is often, but not always, used in the context of employment tribunal litigation.

The form used by conciliators to record the settlement is a COT3, in which the agreed terms are set out and signed by the parties.

The parties must consider the terms of the settlement that they want to reach through ACAS. These terms might include payment of a sum of money, withdrawal of proceedings and an agreement not to raise further claims against the employer.

Often, the employer will also insist on confidentiality provisions in the COT3. Confidentiality provisions will likely cover the terms and existence of the COT3 agreement itself, but might also extend to reiterate the employee’s confidentiality obligations under the contract of employment.

The question which was raised in Duchy Farm Kennels v Steels was whether an employer can avoid paying out under a settlement agreement if the employee breaches the confidentiality provisions.

In this case, the COT3 agreement included express confidentiality provisions. The employer alleged that the former employee had breached those confidentiality obligations and therefore stopped any further staged payments under the COT3. The employee sued the employer for his payments.

The High Court agreed with the County Court that it was not possible for the employer to cease payments, even if the employee had breached the confidentiality clause. This was because the confidentiality clause was not expressed to be a condition of payment.

The County Court had rightly held that the confidentiality clause in the COT3 was “boilerplate” – it was of a standard nature and did not relate to the substantive parts of the agreement. Therefore it wasn’t a condition of the agreement and did not entitle the employer to cease payment.

The High Court noted that a confidentiality clause could be expressly made a condition of a COT3, particularly if confidentiality was the significant benefit that the employer got under the settlement (rather than avoiding a tribunal claim), although labelling the term a ‘condition’ would not automatically make it one.

In this case, the dispute was of a fairly standard nature, there was no significant commercial risk to the employer of a breach of confidentiality. To treat the confidentiality provision as a condition of payment in this case would not have led to a reasonable result.

This case serves to remind employers to ensure that the terms of a COT3 agreement are properly recorded and the employer has thought about what conditions it wishes to attach to payment of any settlement sums. Simply labelling a confidentiality provision as a condition, may not be enough. The employer must think about the commercial risks it may face if the employee does breach confidentiality. If this risk is significant, it may be possible to cease payment of any settlement sums if the employee has breached those terms. Alternatively, the employer could make specific provision for damages in the event of a confidentiality breach.

If you would like any further information, please contact Kathryn Moorhouse on 0113 280 2231 or kathryn.moorhouse@luptonfawcett.law or another member of the employment law team.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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