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Settlement Agreements - Broken Promises

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A legally binding settlement agreement has been entered into with your employee. She has obtained legal advice on the agreement, it has been signed by all parties and the termination payment has been paid.

You find out a few months later that she has leaked confidential information about the company to a third party…what recourse do you have as an employer?

The simple answer to this depends on the wording you have included in your settlement agreement.

It is advisable to include a repayment provision in your settlement agreement which provides that if the employee breaches any material terms of the agreement (breach of confidentiality being considered a material term), the employer will be able to recover any monies paid to the employee and that such sum shall be recoverable as a debt…some provisions even go so far as to say any legal fees incurred in obtaining the monies shall be payable by the employee.

More commonly used is an indemnity from the employee to the employer for any losses the employer suffers as a result of such breach.

How about in circumstances where the employee is asked to provide a warranty to return company property within a time frame and fails to do so? It is likely that for some trivial items such as uniform (i.e. overalls) or an identity badge it is unlikely to be considered sufficiently serious to terminate the agreement altogether and it is for the employer to take a view. However, if the employee has failed to return a laptop or mobile phone, these items are of a higher value and therefore the agreement could be terminated and the employee ordered to return the money.

Remember, if a material provision of the settlement agreement has been breached and no monies have been paid to the employee, the employer has the option to bring the contract to an end (which would mean neither party would be bound by the contract).

If you find yourself in a situation where you are needing to recover sums from your employee due to a material breach of the settlement agreement, as with most claims, you will need to send a letter before action to explain the nature of the breach and provide details of the evidence you have to support your claim. The employee should be provided with a reasonable opportunity to respond. If the employee disputes the facts, refuses to pay or ignore the letter, you are then within your remit to issue proceedings for breach of contract.