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Loose Lips Don't Just Sink Ships – What Happens When You Breach a Confidentiality Clause of a Settlement Agreement?

Confidentiality clauses are standard practice for settlement agreements, particularly with respect to employment and labour law matters. An employer is afforded some incentive to resolve a matter when they include the protection of confidentiality. The case summary below highlights the consequences of breaching a confidentiality clause of a settlement agreement.
 
The Ontario Superior Court of Justice Divisional Court Decision in Jan Wong v. The Globe and Mail Inc., 2014 ONSC 6372

Background

Jan Wong (“Wong”) was employed as a journalist at The Globe and Mail Inc. (“The Globe and Mail”) for over twenty (20) years. In September 2006, Wong was directed by The Globe and Mail to write a piece with regard to the shooting in Montreal at Dawson College. Wong’s article was controversial and garnished her personal attacks not only in the media.
 
Wong stated that as a result of the ongoing attacks, she began to experience severe depression. Wong’s mental health issues led her to be off work from October 2006 to the spring of 2007. Wong returned to the Globe and Mail in April 2007, but soon after suffered a setback, which resulted in another lengthy leave of absence.
 
The Globe and Mail refused to pay Wong sick leave between June and November 2007. In or about May 2008, Wong was advised that she must return to work, despite Wong’s claim that she was still medically disabled. The Globe and Mail contested that Wong was sick or unable to work. Wong did not return to work as advised. As such, The Globe and Mailed terminated Wong’s employment.
 
Wong, through her Union, brought a grievance against The Globe and Mail for unpaid sick leave and termination. On July 9, 2008, the grievances proceeded to arbitration. A settlement was ultimately reached after a few months of mediation through an arbitrator (“the Arbitrator”). The settlement was reflected in a Memorandum of Agreement (“MOA”). The MOA dictated that The Globe and Mail pay Wong a lump sum representing the unpaid sick leave as well as a lump sum representing two (2) years’ pay, totalling $209,912.00.
 
It was discovered during the months of mediation that Wong intended on writing a book with respect to her experiences of dealing with serious depression in the workplace. As such provisions were included in the MOA which stated the following:
 
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 paragraphs 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.
 
Paragraph 3 of the MOA was with respect to the second lump sum, representing two (2) years’ of wages.
 
Wong published a book entitled “Out of the Blue” (“the Book”) in May 2012. The Globe and Mail immediately brought an application for a determination of a number of phrases in the Book breached the MOA. The Arbitrator held a hearing on May 20, 2013. The Arbitrator concluded in her July 3, 2013 decision that at least four of the impugned phrases breached the MOA. In accordance with the MOA, because the Arbitrator found a breach, Wong was ordered to repay the second lump sum of the settlement of $209,912.
 
As such, Wong brought an application for judicial review of the Arbitrator’s decision.

Issue

For the purposes of this discussion, the issue of standing will not be discussed. The issues considered for the purposes of this discussion before the Court were as follows:
 
  1. whether the Arbitrator applied the wrong legal framework in considering that if there was a breach of the MOA, whether Wong should be relieved from the MOA provision to repay part of the settlement amount;
  2. did Wong breach the MOA; and
  3. was there a reasonable apprehension of bias by the Arbitrator.

Divisional Court’s Decision

Issue 1

Outside of whether or not Wong breached the MOA, Wong argued that that the repayment provision of the MOA is an “oppressively punitive forfeiture provision” (para. 41). Wong argued that the Arbitrator’s failure to conclude that the provision was punitive in nature was a fundamental flaw and therefore, the Arbitrator’s decision was incorrect in law or, alternatively unreasonable.

The Court found that the Arbitrator did not fail to conduct a proper analysis of the issues and particularly, that the Arbitrator did spend time considering Wong’s penalty/forfeiture argument.

The Court highlighted that the fact that the MOA did not require Wong to forfeit the lump sum received with respect to the unpaid sick leave. As such, it the MOA was clear that Wong was required to maintain confidentiality otherwise it was “entirely reasonable” to enforce such a provision. The provision was protection to The Globe and Mail to have greater insurance that Wong would fulfill her obligation of confidentiality. The Court held that it was clear from the MOA that The Globe and Mail wanted the settlement with Wong to be confidential.

The Court did not find that there was an inherent unfairness to requiring Wong to repay after breaching the MOA she agreed to. 
 
Issue 2

Wong argued that she did not breach the MOA because she was under the understanding that she could reveal the terms of the settlement as long as no actual amounts of the settlement were disclosed.

In assessing this argument, the Court first noted that the subjective understanding of the parties with respect to what is the meaning of the contract is not admissible for the interpretation of the written contract itself. The Court then highlighted that the fact that the Arbitrator gave any consideration what Wong understood subjectively with respect to he MOA, was beyond what was normally legally considered. As such, the Arbitrator’s conclusion that “it would be inappropriate to set aside a comprehensive settlement, negotiated over a lengthy period of time, which in clear, unambiguous and objective language sets out what the nondisclosure obligation entails merely because of the grievor’s subjective opinion and what she “thought” her nondisclosure obligations to be” (para. 60) was reasonable. The Court went so far as to state that “it is hard to see how the Arbitrator could have concluded otherwise.” (para. 61).
 
Issue 3

Wong submitted that because the Arbitrator was involved in the intense mediations which lasted for months, she was no longer in a position to impartially adjudicate the issue with respect to an alleged breach of the MOA. Wong asserted that the Arbitrator’s reasonable apprehension of bias was displayed in her refusal to allow Wong to give oral evidence at the hearing, but rather accepted affidavit evidence. The Court found that Wong’s argument lacked merit.

First, the Court noted that the Arbitrator has full discretion as to how a hearing is conducted, whether it be through oral or affidavit evidence. The Court further found that because the principal issue was a contractual interpretation issues, there was no need for oral evidence.

Second, the Court stated that “[t]he mere fact that the Arbitrator was involved in the mediation does not properly give rise to a reasonable apprehension of bias.” (para 64). The Court outlined the well established test for the appearance of a reasonable apprehension of bias, as “what would an informed person, viewing the matter realistically and practically – and having thought the matter through – conclude” that there is or is not a reasonable apprehensions of bias. (para. 64 citing R. v. R.D.S. [1997] 3 S.C.R. 484 at para. 111). Having view of this test, the Court concluded that any person reasonably informed in the context of this matter which resulted in the executed MOA that the Arbitrator has any bias what so ever.

Conclusion

Ultimately, the Court dismissed Wong’s application. As such, Wong was required to repay part of the settlement because she breached the MOA.  

Our Thoughts

This case highlights the courts’ tendency to affirm and uphold agreements which parties agree to. It is well known in contract law that the courts do not like to interfere with what has been contemplated and bargained into by parties, and as such the parties should be held to those bargains. As mentioned above, employers are often incentivised into settlement because of the obligation of a former employee to keep the terms of the settlement confidential. Breaching such a cornerstone obligation, therefore, is taken seriously. It is advisable that any settlement agreement includes a confidentiality clause which is clear and unambiguous to the terms of the confidentiality and the consequences of a breach. 
 
The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.