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Enforceability of non-disparagement clauses in deeds

A question that arises quite often amongst our clients is – do non-disparagement clauses have any practical effect? Or are they even enforceable? The answer is yes, when drafted correctly.

A question that arises quite often amongst our clients is – do non-disparagement clauses have any practical effect? Or are they even enforceable? The answer is yes, when drafted correctly.

Enforcing non-disparagement clauses against an uncooperative party can be a very time-consuming and costly exercise. However, as the recent decision in Network Ten Pty Limited v van Onselen [2023] NSW SC 829 shows, sometimes such action is necessary to protect a party’s reputation and limit any consequential damage.

The matter concerned a Network Political Editor (Employee) previously employed at Network Ten (Employer). His employment came to an end in March 2023 on terms set out in a Deed of Release.

The Deed of Release contained a mutual non-disparagement clause in which both parties agreed not to disparage the other or make any statement or publication, whether oral or in writing, which brings the other party into disrepute or ridicule or which might otherwise adversely affect their reputation.  

In May 2023, the Employee wrote an article that was published in The Australian about the Employer and its financial viability. Soon after the article was published, the Employer wrote to the Employee complaining about the article and seeking written undertakings. When the Employee refused to provide the undertakings, the Employer applied to the Supreme Court of NSW (the Court) for urgent injunctive relief.

Before the Court, the Employer argued that the article was in breach of the non-disparagement clause of the Deed as it disparaged the Employer’s financial position, the viability of its US parent, its Australian brand and its management.

The Employee argued that the article was not in breach of the non-disparagement clause because the clause was only intended to capture statements in bad faith that went beyond fair comment and its purpose was to stop negative commentary about his employment, the Employer as his employer and the circumstances surrounding his termination.

The Employee also argued that the article only contained information that was already publicly available, and that the Employer’s reputation had already been tarnished or exposed because there had already been wide discussion about the same facts in his article.

In addition to the above, the Employee also sought to argue that the clause was a restraint of trade that impinged on his right of free speech and therefore prevented him from exercising his professional occupation, and that it was invalid because it was against public policy.

Lastly, the Employee argued that the Employer had made representations to him to the effect that the clause would not operate to prevent him from making any comment whatsoever about the Employer and that he could still say what he wanted within reason. The Employer denied it had made those representations and argued instead that it had told him that how the Deed would operate was a matter to be dealt with by their respective lawyers.

In relation to the alleged representations, the Court preferred the evidence of the Employer’s witness, finding him more credible than the Employee. It considered that if the ambit of the non-disparagement clause was so important to the Employee at the time, he would have raised the concern with his lawyer and made sure that the clause operated as purportedly agreed. In reality, he did not discuss it with his lawyer and the clause did not read that way.

According to the Court, the clause made no exception for disparagement which might be fair comment or for a party to say what they wanted (even if disparaging) provided it was “within reason”. Further, matters of “good faith” or the Employee’s occupation had no relevance to the operation of the clause. While the matter concerned the Employee’s right to free speech, it was only to the extent that he had bargaining that right away in the Deed.

Turning to the article, the Court considered that it was undoubtedly disparaging – both by particular statements within it and as a whole – and that it was intended to be so. It found that “the tenor of the Article is to cast doubt on [the Employer]’s long-term viability and to convey that its holding company may cut its losses by dumping unprofitable parts of its business (of which [the Employer] is one).

The Court found that such disparagement could “self-evidently undermine the confidence of investors or potential investors in [the Employer]. That is not a trivial or insignificant matter.

The Court also rejected the Employee’s arguments that it merely re-stated publicly available information, finding that it conveyed analysis, comments, views, inferences and conclusions, brought together in a pejorative whole, and the fact that disparaging comments had been made prior to the article did not make the article any less disparaging. Further, by writing about his own personal experience as an employee, the article became something that only he (as a former employee) could have known and written.

Accordingly, the Court found that the Employee had breached the Deed of Release. However, it declined to order any injunctive relief, accepting the Employee’s argument that this breach had arisen as a result of his miscomprehension of the operation of the Deed and there was no risk of any further breach. According to the Employee, now that he knew how the Deed was to operate, there was nothing to suggest that he would not comply with it in the future.

Lessons for employers

When negotiating deeds of release with departing employees, and where such deeds include mutual non-disparagement clauses, it is critical that they are carefully drafted to ensure that it adequately protects the employer from disparaging conduct.

As this case shows, these clauses are enforceable and may require enforcement to protect an employer’s reputation and goodwill.  

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

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