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Farrer & Co | “Gagging” an ex-employee? – Part 2: Remedies

Part 1 of my blog on "gagging" ex-employees – here – looked at the types of steps employers could take to try to prevent the sort of public spat Donald Trump recently found himself in with ex-aide Steve Bannon (in which Bannon made some pretty sensational comments about Trump allegedly in breach of a non-disclosure agreement). Trump responded by saying that Bannon had "lost his mind".

As tempting as adopting the Trump response may be, I expect that declaring an ex-employee in breach of a "gagging" clause to have lost their mind won't have the desired effect for the majority of employers (and may even risk breaching employer obligations not to make derogatory comments about the employee!). So in this blog piece I look at what options are open to an employer if an ex-employee breaches a confidentiality or non-derogatory comments clause in a settlement agreement.

What can an employer do if an ex-employee breaches a "gagging" clause?

The first thing to do is ask whether or not the breach is repudiatory (in other words a breach that goes to the heart of the contract). If there is a repudiatory breach by the ex-employee, the employer has the following options:

1. Accept the Repudiatory Breach - Where a breach is repudiatory the aggrieved party has the right to accept the breach and treat the agreement as repudiated. In this case, both parties are discharged from future obligations under the settlement agreement. This can be an advantage to an employer if it still owes money to the ex-employee or wants to get out of any of its own obligations. Thankfully any waiver of claim in the settlement agreement should remain intact, as the obligation has already been performed.

Alternatively, it may not be advisable for the employer to treat the agreement as repudiated if all money has already been paid out, as damages would be limited to the loss suffered as a result of the breach and not entitle it to recover the sums paid. An employer would need to show evidence of the breach and identify precisely what losses it has suffered as a result, which can be tricky where the damage is purely reputational.

2. Treat the agreement as ongoing – The employer could treat the contract as ongoing and seek to hold the other party to it by applying for an injunction. This would involve obtaining a court order to force the ex-employee to comply with the agreement (for example, by removing any post/tweet from social media). Any claim for damages would still be limited to the loss suffered, which can be difficult to prove.

If the breach is non-repudiatory, only this second option would be available. As the agreement remains intact, the employer would still be obliged to pay any unpaid sums to the ex-employee under the agreement unless they were specified as being conditional on compliance with the obligations that the ex-employee has breached – something we would recommend.

3. Clawback provisions – As a result of the potential difficulties obtaining full compensation for sums paid following a breach, many settlement agreements contain clawback provisions, allowing the employer to recover payments made in the event of a breach. However, many of these clauses may actually be unenforceable as a penalty if they bear no relevance to the actual amount of damage caused by the breach. If an employer is considering entering into a settlement agreement with an employee who they consider is likely to breach provisions of the agreement, they may therefore instead want to consider staggering the compensation payments.

Gagging clauses are notoriously hard to police. A breach can be difficult to prove and damages tricky to quantify. However, what is essential is to put in place clearly drafted wording specifying exactly what the employee can and cannot do, so that when you come to dealing with rogue behaviour from an ex-employee you are in the best position possible. Otherwise, you may have to take the Trump approach of saying they have "lost their mind" and hoping for the best (although we wouldn't recommend that)!

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