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An Employer's Guide to the Non-Disparagement Clause




by:
Ian C. Wallace
Stewart McKelvey - St. John's Office

 
June 7, 2012

Previously published on Spring 2012

Introduction

The aim of any employer during a settlement is to negotiate terms that will protect its business interests. A non-disparagement clause prohibits a former employee from making negative or demeaning remarks, either orally or in writing, about a former employer, its reputation, business operations and products. The clause may be inserted in a release or other document executed by the employee at termination. Negative comments made about an employer or workplace on a social network, like Facebook, are fair game for a disparagement claim, according to the recent groundbreaking British Columbia Labour Board decision in Lougheed.

Non-disparagement clauses are common in the United States, where occasionally high profile actors and athletes receive media attention for violating their agreements. Charlie Sheen is one of the latest celebrities accused of breaching a non-disparagement clause with Warner Brothers Television. The former Two and a Half Men star made headlines last year for his erratic behaviour and for arrests involving drug possession and domestic violence. Sheen topped his media hijinks by making a string of derogatory public statements about the popular television sitcom, its creator and his fellow co-stars. Sheen subsequently lost his role on the program for having committed 'moral turpitude', an act that Warner Brothers say violated his contract's morality clause. And if a non-disparagement clause was in fact a part of Sheen's employment contract, he may face future legal action for its violation.

A recent Ohio appellate court decision reflects the American stance on the enforceability of non-disparagement clauses. The Lopez decision suggests that employers may be able to enforce non-disparagement clauses in severance agreements only where there has been a material breach that causes the employer to 'suffer harm' as a result.

Canadian employers are beginning to make use of the non-disparagement clause in severance agreements. This practice may be beneficial, as the clause establishes an expectation of professionalism and protects a business from malicious comments that may lead to a loss of revenue. However, the enforceability of a non-disparagement clause is not always assured.

Enforceability factors

Canadian courts and tribunals have assessed the enforceability of non-disparagement clauses, albeit in a small number of cases. Factors that affect enforceability include its wording and construction and whether its content is contrary to public policy as a limitation on freedom of speech.

The construction of the clause

In January 2011, the Ontario Human Rights Tribunal in Clements considered an allegation by an employer operating a large retail store that a former employee had violated the non-disparagement clause in a severance agreement by discussing settlement details with a third party. The employer asserted that any third party's knowledge of its settlement with a former employee would automatically lead others to 'second guess' it as a workplace and business.

The tribunal looked to the wording of the clause and also applied the dictionary meaning of the word 'disparage'. The tribunal determined that advising a party about a settlement is not a negative comment about either of the parties involved. Therefore, the former employee's actions were not found to be disparaging, indirectly or otherwise, of the employer.

Freedom of speech considerations

Discussion persists as to whether a non-disparagement agreement infringes upon freedom of speech. In 2009, the Ontario Public Service Grievance Board in Antoncic decided that a non-disparagement clause signed by a former employee was not an infringement upon that employee's right to free speech. The board noted that the former employee had freely agreed to the clause during the severance agreement without contest. The board also determined that the provision was clearly stated and that its encompassing non-disparagement obligations were reasonable.

Duration - Is there a limit?

The duration of a non-disparagement clause has not yet been determined by a Canadian court or tribunal. However the principles of restrictive covenants commonly found in an employment contract may be helpful in determining a practical range for duration. Generally, confidentiality covenants that prohibit the communication of trade secrets to others by an employee or former employee need not be time limited. But non-competition and non-solicitation covenants usually have a termination date that does not to extend beyond 12 months.

What this means for you

The natural language meaning of 'disparage' is to negatively comment about a person, place or thing. However, courts and tribunals that are considering a claim involving a non-disparagement breach will look closely at the clause's clarity and content in making its determination. Therefore, it is recommended that an employer clearly set out the specific meaning of 'disparage' in its agreement. That way, the employee is clearly aware of his or her non-disparagement obligations. Stating the obligations during negotiations for termination also gives the employee an opportunity to challenge terms he or she is not willing to commit to, or to seek clarification and promotes enforceability.

As for the claim that non-disparagement clauses encroaches on free speech, ultimately it is an employee's choice to bargain this right away. However, a non-disparagement clause that is over broad and breaches public policy will not be enforced. Therefore, employers should ensure that the former employee's non-disparagement obligations are stated clearly and concisely set out in the release or severance agreement.

Until a Canadian court or tribunal makes a determination regarding the enforceability of a non-disparagement provision, the duration is left to the discretion of the parties involved in a severance settlement. Practically speaking, it seems unlikely that any employer can successfully monitor the actions of a former employee over an indefinite period of time. Perhaps an employer would be motivated to monitor the communications of a former employee who had a history of bad-mouthing its business. In this case, it may be worthwhile to insist upon an indefinite non-disparagement clause. Otherwise, the employer should assess its purposes for inserting a non-disparagement clause and choose its duration accordingly.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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