Court of Appeal: Breach of Contract Against Employer for Breach of Settlement Confidentiality

Sanchez was a county labor relations manager for San Bernadino County. She became romantically involved with a union official, Erwin. Their respective employers negotiated labor relations memoranda of understanding. At some point, their relationship became known and unacceptable to the county's brass. The County thought a romance between labor negotiators on opposite sides of the table might constitute a conflict of interest. So sensitive! For her part, Sanchez denied the conflict of interest, but admitted the appearance of impropriety. So, the county gave Sanchez the chance to resign with a separation agreement.

The separation agreement contained a strict confidentiality requirement. But immediately after Sanchez resigned, the newspapers picked up on the story and quoted county officials. She sued the county and individual defendants for a variety of claims, including breach of contract. The county successfully "SLAPPED" most of the causes of action. The trial court eventually granted summary judgment on the rest of them. The court dismissed the breach of contract claim because the confidentiality agreement was contrary to the county's legal duty to disclose such facts to the public.

On appeal, the court of appeal reinstated the contract claim. The county's primary argument was that it was bound to disclose Sanchez's affair. After analyzing the various legal theories (including the Public Records Act and the First Amendment), the court said there was a triable issue of fact on the contract claim because the county did not have to disclose the affair to the papers. Had the settlement agreement been disclosed under the Public Records Act, the court might have come down the other way.

The court rejected the county's argument that Sanchez waived the confidentiality agreement by speaking with her parents and showing the agreement to Erwin. The court found it significant that Sanchez did so only after learning of the county's breach.

Regarding the issue of damages, she presented significant evidence it was harder to find a job after the disclosure of the affair to the newspapers. Therefore, the court rejected the county's contention that there were no damages available for the breach of confidentiality.

Typically, employers do not advertise their settlements with employees. So, this case may be an anomaly, particularly in the private sector. But to the extent employers needed motivation to maintain confidentiality, the prospect of a breach of contract claim should provide it. Employers should ensure they honor confidentiality provisions in separation agreements.

The case is Sanchez v. County of San Bernardino and the opinion is here.