"You can't say that!" Testing the boundaries of non-disparagement clauses

By Kym Fraser, Stuart Kovacs
31 Aug 2023
Time to read: 4 minutes

The enforceability of non-disparagement clauses invariably depends on their construction, practical effect, the alleged breach, and the legitimate interests they purport to protect.

Broadly speaking, non-disparagement clauses restrain a party to a contract from saying anything that could reasonably be perceived as negative about another person or company (including its products, services, or agents). They usually apply to both parties, and include any form of communication made in public or private. Often, such clauses will be enforced in perpetuity (similar to non-disclosure obligations) and therefore applies to conduct after an agreement is entered into.

Non-disparagement clauses are almost universally found in redundancy deeds or settlement agreements resolving disputes relating to the termination of employment. They have also arisen (more controversially) in employment contracts and standard form contracts between businesses and consumers.

But what constitutes a legitimate non-disparagement clause? When might you find yourself in breach, and what are the likely consequences? A recent high-profile decision handed down in the NSW Supreme Court examined these questions, finding that the defendant, Dr van Onselen, had breached the non-disparagement clause contained in a Deed of Release he had entered with his former employer, Network Ten Pty Limited.

Dr van Onselen publishes his views

Dr van Onselen's employment as Ten's Network Political Editor was terminated in the terms set out in the Deed, which included a non-disparagement clause:

"…the Employee agrees not to disparage the Company or any of the Releasees or make any statement or publication, or authorize any other person to disparage or make any statement or publication, whether oral or in writing, which may or which does in fact bring the Company or any Releasees into disrepute or ridicule or which may otherwise adversely affect their respective reputations."

A couple of months after the Deed had been executed, an article by Dr van Onselen was published in The Australian newspaper. Ten contended that the article disparaged it, and it sought both a declaration from the Court that Dr van Onselen was in breach of the clause, and a permanent injunction restraining him from further breaching it.

The proper construction of the clause: is fair comment allowed?

Chief Judge Hammerschlag rejected Dr van Onselen's argument that the non-disparagement clause should only be construed as capturing "statements in bad faith that go beyond fair comment".

As a commercial contract, the Deed was to be given a "business-like" interpretation focusing "attention to the language used by the parties, the commercial circumstances which it addresses, and the objects which it is intended it secures". Moreover, the language is to be determined by "what a reasonable businessperson would have understood" it to mean. Accordingly, he found that "on its plain wording", the non-disparagement clause made no exception for "fair comment" or permitted Dr van Onselen to say anything he wanted "within reason".

Illustrating this point further, Chief Judge Hammerschlag drew a clear distinction between a claim in contract for breaching a non-disparagement clause and an action in defamation. Dr van Onselen's right to free speech had been embargoed by the constraints set out in the Deed. The defence of "fair comment", which is recognised in defamation cases, was not available in defence to the contract claim. Notably, while non-disparagement clauses and the tort of defamation both regulate the right to free speech, disparagement is capable of casting a wider net by prohibiting a party from making a negative statement despite its truthfulness.

What is disparagement? Close attention will be paid to language

Chief Judge Hammerschlag examined the choice of language used by Dr van Onselen in the article, noting that disparagement would arise if the statements under consideration were "phrased in a slighting or deprecating way or in a way that was calculated to bring discredit". The tenor of the article was "hardly expressed in neutral terms"; he drew particular reference to phrases such as "a role I walked away from", sales and ratings having "plummeted", and the possibility of Ten "limping along with little attention paid to it by its overseas owners (or its domestic competitors to be frank)". This disparagement was "not a trivial or insignificant matter" as it could self-evidently undermine investor confidence.

In finding that the article was in breach of the Deed's non-disparagement clause, he rejected the argument that it conveyed matters which "any other journalist" could have written (given Dr van Onselen's reference to walking away from Ten, a subject of personal experience). Nor was the article a "mere recitation of publicly available information" as it conveyed "analysis, comments, views, inferences and conclusions, brought together in a pejorative whole".

Was the non-disparagement clause a restraint of trade?

Chief Judge Hammerschlag then considered a rather novel argument raised by Dr van Onselen that the non-disparagement clause was an invalid restraint of trade. He observed that this would depend on the "practical working of the alleged restraint" rather than its legal form, but that there was "no conceptual reason why, depending on its field of operation, a non-disparagement provision could not be in restraint of trade".

Ultimately, it was not:

"Clause 7.1 limits Dr van Onselen only to making statements which are disparaging of his former employer and its related corporations, officers and employees. Leaving aside the fact that it does not muzzle him entirely, in the universe of discourse in which Dr van Onselen is or may be involved, realistically viewed, it does not restrain him in his trade or calling in any, or any meaningful way. It imposes no barrier to him exercising his profession or calling and, if it does, the barrier is [insignificant]. The connection between that restraint and any supposed economic prejudice is too remote to result in it being fairly viewed as in restraint of trade." [emphasis added]

Even if were a restraint of trade, he noted, the clause went no further than was necessary to protect Ten's legitimate interests in protecting its goodwill against disparagement from Dr van Onselen. Nor did it involve any detriment to the public (which would have enabled the Court to "cut it down" in operation).

While Chief Judge Hammerschlag was minded to make a declaration as to Dr van Onselen's breach of the non-disparagement clause, he accepted that the article amounted to "a one-off mistake" and that there was "no realistic risk or possibility" that a breach would occur again. A permanent injunction was therefore not ordered.

Key takeaways when considering a non-disparagement clause

  1. In determining the operation and scope of a non-disparagement clause, the Courts will embark on a "business-like interpretation" in applying the usual contract law principles. Primacy will be given to the clause's language, commercial circumstances, context, and purpose.
  2. "Good faith", "fair comment" or establishing the truthfulness of a statement will not necessarily defend against a breach of a non-disparagement clause. The key issue is whether the statement(s) in question are captured by the clause.
  3. To mitigate the risk of breaching a non-disparagement clause, parties should seek specific carve-outs to the clause. Otherwise, future statements should either completely avoid the embargoed subject matter, or be framed in a neutral tone, on a proper basis, and without subjective analysis or commentary.
  4. While a non-disparagement clause is capable of being in restraint of trade, the Courts will examine the practical workings of the clause to determine whether it is in restraint of trade. That requires a meaningful or significant barrier imposed on the trade, and a clear economic prejudice suffered as a result.

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