Settlement Agreement Penalty Clause

The Court found that section 10 of the facts is not a sanction provision. The parties have finally settled their dispute and agreed on an agreement. All that remains is the draft agreement. Jan Wong was a former Globe and Mail columnist who was the subject of a wrongful dismissal complaint. The complaint was resolved and the transaction agreement contained a confidentiality clause. The confidentiality clause itself was typical in that it required the parties not to disclose the terms of the transaction. In terms, however, there was a somewhat atypical disposition, which arose from the fact that Wong intended to write a book about his experience of depression at work. She was concerned about her right to speak openly about her experience and, as a result, the transaction contract contained a provision that, until a specified date, which was approximately one year after the comparison, she would not denigrate the employer with respect to “all matters related to her employment and dismissal”. The consequence of a violation of these provisions was also set out in the settlement agreement, which provided that the arbitrator would remain in court in the event of an alleged breach to determine whether there was an infringement and, if so, wong would be required to reimburse the employer a lump sum payment granted to him under the agreement, which amounted to a two-year salary (nearly $210,000). The key to drafting a liquidated damages provision is to ensure, as far as possible, that the amounts to be paid as liquidated damages constitute a “reasonable estimate” of the harm that could result from an infringement. The law does not require that a calculation of likely losses be made at the conclusion of the contract.

However, it is good practice to do so when the liquidated compensation is attacked later than an alleged sanction. Non-monetary factors may characterize the amount to be paid as compensation in the event of a breach of contract, but if this happens, these factors should be identified, whether during the negotiation of the contract or even in the contract itself. The High Court had to address first and foremost whether the confidentiality clause existed: in both cases, the relevant clauses were upheld, with the Tribunal finding that the legitimate interest of the party demanding the clause was served by the application of the clause, even though its primary purpose may have been a deterrent effect.

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