A recent Ontario arbitration decision1 underscores that confidentiality clauses in minutes of settlement are enforceable – as are conditions requiring the repayment of settlement funds when those clauses are breached.
Jan Wong was a unionized reporter with The Globe and Mail who was terminated after an absence due to depression. Her union filed grievances arising from her termination and the alleged failure to pay her disability benefits.
As is often the case in arbitration proceedings, Ms. Wong’s union and the newspaper agreed to mediate those grievances at the beginning of the arbitration. That mediation was successful and Ms. Wong’s complaints were resolved between the parties. A memorandum of agreement (Memorandum) was signed containing the following important terms:
- With the exception of paragraph 5, the parties agree not to disclose the terms of this settlement, including Appendix A to anyone other than their legal or financial advisors, Manulife and the Grievor’s immediate family.
- The Grievor agrees that until August 1, 2009, she will not disparage The Globe and Mail or any of its current or former employees relating to any issues surrounding her employment and termination from The Globe and Mail. The Globe and Mail agrees that until August 1, 2009, to not disparage the Grievor.
- Should the Grievor breach the obligations set out in paragraph 5 and 6, above, Arbitrator Davie shall remain seized to determine if there is a breach and, if she so finds, the Grievor will have an obligation to pay back to the Employer all payments paid to the Grievor under paragraph 3.
Ms. Wong, her union and the newspaper all signed the Memorandum.
Nearly four years later, Ms. Wong published a book about her experience with workplace depression. In her book, Ms. Wong made a number of references to the settlement she had reached with her former employer. Portions of those references include:
- She had “just been paid a pile of money to go away”;
- “A big fat check landed in my account”;
- She “wanted to dance a jig”;
- Her sister and a union representative told her that she “got everything [she] wanted”;
- She couldn’t “disclose the amount of money [she] received”; and
- Her bank account was “vastly swollen.”
Unsurprisingly, The Globe and Mail took the position that Ms. Wong’s book disclosed terms of the settlement, which was a breach of clause 6 of the Memorandum. The newspaper brought a motion before Arbitrator Davie, asking her to order that Ms. Wong repay the settlement money as a result of that breach. The request was made in accordance with clause 8, which set out the consequences of a breach of the Memorandum.
Even though Ms. Wong had union representation and separate independent legal counsel during the negotiation of the Memorandum, the union took the position that the provision requiring repayment was unenforceable on the basis it was a penalty clause and was unfair and unconscionable.
The union argued the penalty imposed was unfair. It further argued Ms. Wong had not been in a position of equal bargaining power when she negotiated the Memorandum: she had been terminated and had not received any money from the employer or the insurance company for many months; she was sick and suffered from depression and; an unequal balance of bargaining power was in any event “inherent” in the employer-employee relationship.
Ms. Wong claimed to have misunderstood what clause 6 permitted and prohibited. She claimed to understand that she could discuss the fact she received a settlement payment but not the amount of that payment. She also claimed to understand that clause 7 (related to non-disparagement) and clause 6 (related to non-disclosure) were linked.
She therefore believed that after August 1, 2009, she was able to write freely about her experience working at The Globe and Mail, including how she felt her employer had reacted to her depression. It was her view the settlement of her grievance was part of her experience working for the newspaper and it would have been implied that money was paid to her as part of that settlement.
Lastly, Ms. Wong claimed she suffered from depression during the period the Memorandum was being negotiated and signed.
Arbitrator Davie found that clause 6 was enforceable and had been breached by Ms. Wong. As a result, she was ordered to repay the settlement money.
The arbitrator confirmed that clause 6 and clause 7 of the Memorandum imposed distinct obligations on Ms. Wong. Clause 6 obligated her not to disclose any of the settlement terms. Clause 7 required her not to disparage her employer. The arbitrator also found it was not reasonable for Ms. Wong to have concluded she could disclose that settlement money had been paid to her as long as she did not reveal the dollar amount of that settlement.
Some specific elements of the case influenced Arbitrator Davie’s decision: the parties had negotiated back and forth over a period of two-and-a-half months; correspondence between the union and Ms. Wong made it clear she understood that the Memorandum contained separate clauses relating to non-disparagement and non-disclosure; Ms. Wong actively participated in the negotiations that led to the Memorandum and negotiated changes to the Memorandum during those discussions (including that she could disclose that The Globe and Mail acknowledged her disability) and; she had union representation and separate independent legal representation throughout her negotiations with her former employer.
The arbitrator disagreed that clause 8 was an unenforceable penalty clause or that clause 7 was unfair or unconscionable. While the clause specified a consequence if Ms. Wong breached the Memorandum, that consequence was not unlawful and it had been negotiated by Ms. Wong with the benefit of representation. Furthermore, on the evidence, Ms. Wong understood the negotiations and was a sophisticated participant who had the benefit of legal advice.
Arbitrator Davie also found no evidence of incapacity and did not give any weight to Ms. Wong’s “subjective opinion” about what she thought the settlement meant.
Lessons for employers
The decision has important implications for employers in unionized and non-unionized workplaces.
First, Arbitrator Davie was loath to set aside freely negotiated terms and conditions of settlement, in the absence of any evidence of unconscionability. In doing so, she affirmed the importance of upholding freely negotiated terms and conditions of settlement.
Second, the case confirms that non-disclosure clauses are enforceable and adjudicators will enforce the agreed-upon consequences for breaching those clauses.
Third, a claim an employee “did not understand” the meaning of a settlement is likely to fail in the absence of clear and persuasive evidence of that claim. Unsupported and subjective statements are not likely to be enough. Similarly, a past history of incapacity (in this case, depression) may not be enough to allow employees to claim that their disability affected their ability to negotiate a settlement in the present.
In light of the lessons the decision provides, employers should consider the following when negotiating settlements and drafting memoranda of settlement:
1 Keep all notes and letters exchanged during the settlement negotiations. While settlement discussions are generally confidential, evidence of a former employee’s participation in the negotiation process may be required if the settlement is disputed at a later date.
2 Clearly set out what restraints are being placed on each of the workplace parties. There is a recognized distinction between non-disparagement clauses and non-disclosure clauses. The parties should also clearly set out what may and may not be disclosed (e.g., the existence of the settlement itself or its terms) and what the consequences of a breach of the term will be.
3 Confirm that the former employee has legal advice or has had enough time to seek legal advice. Write into the settlement documents that the employee obtained that advice or had time to do so;
4 In unionized workplaces:
(a) require the union, the employer and the grievor to sign the settlement documentation even where the grievor signs a separate release. The union is entitled to bind the grievor (with or without his or her signature), but having the grievor’s signature on the settlement documents avoids future disputes about what was signed;
(b) include a clause in the settlement confirming the grievor’s agreement that he or she was fairly represented by his or her union.
5 If there is any concern that a former employee has a disability that might affect his or her ability to enter into the settlement, resolve those concerns by obtaining confirmation that the employee is capable of entering into the agreement.