More often than not, litigation carries with it emotional baggage. “How dare this person do that to me?”, “I want to make sure the whole world knows just what a [insert swear word] they are!” These sentiments carry during the course of litigation and persist following resolution or disposition. This is why, any sensible party seeking to enter into a form of a Full and Final Release will require a non-disparagement clause.
These clauses are known by many names and come in many forms, such as anti-defamation clauses, non-communication clauses, and more. The goal of each of these clauses is to ensure that, following the completion of a dispute, one side will not bad-mouth or tarnish the reputation of the other. These concerns are ever more prevalent with the advent of social media and world-wide platforms to express such nasty opinions.
As such, many lawyers now consider the non-disparagement clause to be necessary when drafting a form of Full and Final Release. The real question, however, is whether these clauses are deemed enforceable.
Applying Basic Rules for Formulation of Contract
In considering whether any contractual clauses apply, it is always helpful to look back to the basic rules for contractual interpretation for settlement agreements. Generally, in determining whether a certain clause will apply, the Courts will, firstly, consider whether the parties have reached an agreement on all essential terms and, secondly, whether the terms are clear and unambiguous. If these two criteria are not met, the Court will apply its general policy of not stepping in to formulate a contract between parties. Rather, the Court must view the transaction on an objective basis to determine whether there was a meeting of the minds between the parties.
One common misconception that some lawyers miss is that non-disparagement clauses are not considered to be standard. This means that, unless the language is clear as to what exactly is prohibited, the Courts may not step in to fill the gaps of these arrangements. This was confirmed in the recent case of Zou v. Sanyal, where the Court did not consider non-disparagement clauses to be standard term in a release when it came to a breach of contract, and that an agreement to agree to a future mutual release can be fatal to the agreement.[1]
Special Considerations in Interpreting and Drafting Non-Disparagement Clauses
In Zou, the Court cautioned counsel to ensure that, when advising their clients, they should explain to all parties on how broad non-disparagement clause may be to ensure that such term is not ambiguous. Namely, the Court found that the plaintiff in that case had not violated the non-disparagement clause as it was too unusually broad. This made it reasonable that the plaintiff failed to appreciate from simply reading the offer to settle that the non-disparagement clause would prevent him from acting in a certain way.
When drafting a non-disparagement clause, thus, parties (and their legal representatives) must make sure that the clause is clear enough to objectively demonstrate what a party can or cannot do or say. This is emphasized by the Court of Appeal in the Olivera v. Sherman case, wherein the Court held that, in determining the extent and applicability of non-disparagement clauses, the Court must analyze the clause through an objective light and not through subjective interpretation, with limited exceptions. It is important to note that, in cases that followed Olivera, the overarching theme is that the subjective intentions of the parties are not relevant to an enforceability analysis. “The law is not concerned with the parties’ subjective intentions but with their manifested intentions. An agreement is binding if it contains the essential terms, even if the parties agree that it will be subsequently recorded in a formal document.”[2]
Practical Enforceability of Non-Disparagement Clauses
Alright, so your non-disparagement clause is enforceable. Now what? Suppose a party actually has to enforce its non-disparagement clause prohibiting the other party from posting negative reviews online. The main concern then becomes 1) what does enforcement of negative reviews actually look like; and 2) what entitlement/which damages is the aggrieved party entitled to?
The monetary amount to be awarded following the breach of a non-disparagement clause is always at the discretion of the court. Recently, the Court in 772694 Ontario Limited v. Gurnsey outlined the consequent of plaintiffs breaching of a non-disparagement clause where a bad review was posted by them against the defendants on the internet.[3] Following this breach, the defendants brought an injunction requiring the plaintiffs to remove the post resulting in substantial indemnity costs. However, no real damages were awarded for the post being published in the first place.
One of the guiding principles for the awarding of damages is actual harm proven. In essence, what damage did the posting of the negative review/disparagement actually cause to the aggrieved party? This is where practical enforceability becomes tricky as it becomes an exercise of determining whether the cost of removing the post and bringing an urgent legal proceeding outweighs the actual cost that leaving the post may have.
This is why, in conclusion, even though non-disparagement clauses may be legally enforceable, they may be impractical when considering the cost/benefit analysis of enforcing same. This is also why, when drafting non-disparagement clauses, it may be helpful to include legitimately pre-estimated liquidated damages that could be directly enforced for the breach of such clause.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] Zou v. Sanyal, 2019 ONSC 1661 at para. 10.
[2] Cement Accents Manitoba Inc et al v. Wagner Construction et al 2023 MBCA 59, 2023 CarswellMan 230, para 33
[3] 772694 Ontario Limited v. Gurnsey, 2018 ONSC 7391, para 10-12
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
