The final discharge clause: a threat to confidentiality?

If formulated too broadly, a final discharge clause can also cause clauses to lapse that you specifically wanted to retain, such as a confidentiality, non-solicitation, or non-competition clause from the employment contract. Final discharge means that the parties declare that they have no further claims against each other. If you include such a general discharge in a settlement agreement without explicitly excluding the continuing clauses, you run the risk that a judge will rule that those clauses also fall under the discharge. For an employer who wants to protect their business-sensitive information and client base, this is a real danger. Below, you can read how this works and how to prevent it.

What is a final discharge clause?

A final discharge clause is an agreement in which parties declare that, after the execution of what has been agreed upon in the contract, they have no further claims against each other and grant each other full (final) discharge. You will primarily encounter this clause at the end of a settlement agreement, for example, when terminating an employment contract by mutual consent.

The goal is to draw a line under the past: after signing, parties cannot subsequently raise additional claims. It is precisely this broad scope that makes the clause powerful, but also dangerous. After all, a generally formulated final discharge can encompass more than the parties had in mind. A judge determines exactly what the parties agreed upon not only from the literal text, but also from what they could reasonably expect from each other.

Why a confidentiality or non-solicitation clause can fail

An employment contract often contains clauses that must continue to apply even after the termination of employment. The best known are:

• Confidentiality clause: prohibits the employee from sharing or using confidential company information.
• Non-compete clause: prohibits the employee from approaching the employer's clients or business associates after leaving employment.
• Non-compete clause: restricts the employee from working for or starting a competing company.

The problem arises when the settlement agreement does not mention these clauses but concludes with a broad final discharge “in respect of the employment contract and the termination thereof”. An employee can then argue that the discharge covers everything connected with that employment contract, including the confidentiality and non-solicitation clauses. If those clauses fall under the discharge, they are thereby rendered void. Before you know it, you lose the protection you carefully included in the employment contract

A practical example

That this is not a theoretical risk is evident from a ruling by the District Court of Central Netherlands of January 11, 2019 (ECLI:NL:RBMNE:2019:210). The situation was as follows:

• The parties entered into a settlement agreement to terminate an existing employment contract.
• That employment contract originally contained both a non-compete clause and a confidentiality clause, intended to continue after the employment ended.
• The settlement agreement did not mention these clauses and concluded with a standard final discharge clause.
• One month later, the employee started working for another company. The employer believed that the employee was using customer data and thereby violating both clauses.

The employee argued that the final discharge clause had also rendered the non-solicitation and confidentiality clauses invalid. The court followed this reasoning. Factors weighed in this regard, among other things, that the discharge clause pertained to both the content and the termination of the employment contract, and that the parties had paid no attention to the continued existence of the two clauses either in the run-up to the agreement or in the agreement itself. The employer's claim was dismissed.

A court ruling depends heavily on the specific facts and wording and does not constitute a fixed rule; another judge may rule differently under different circumstances. Nevertheless, this case clearly demonstrates how an overly broad discharge can work to the employer's disadvantage.

This is how you prevent important clauses from expiring

The good news: this risk can be effectively mitigated with careful wording. When drafting a settlement agreement, pay attention to the following in any case.

Determine the scope of the discharge consciously

Describe concretely what the final discharge does and does not cover. An unconditional “all-encompassing” discharge sounds safe, but often works to the disadvantage of the party wishing to retain rights.

Without continuous clauses expressly from

Do you want the confidentiality, non-solicitation, or non-compete clause to remain in effect? ​​If so, state this explicitly, for example with a provision that these clauses remain in full force and effect and fall outside the final discharge.

Aligns with the original employment contract

Review the existing employment contract before drafting the settlement agreement. Identify which clauses should continue after the employment ends and deliberately incorporate this into the text.

Record the intention of the parties

Since a judge considers what the parties could reasonably have expected when interpreting a clause, it helps to record that intention. Make it clear in writing that the continuing clauses remain in effect, and discuss this during the negotiations as well.

What does this mean for you as an entrepreneur?

A settlement agreement is too important to rush through with standard texts. The consequences of incorrect wording are often far-reaching: you could unintentionally lose the protection of your customer base and business information. The final discharge clause and its relationship to the non-solicitation and confidentiality clauses are just one example; in a termination agreement, matters such as the transition payment, the end date, the notional notice period (in connection with unemployment benefits), and any exemption from work also play a role.

Are you unsure about the wording of a settlement agreement, or do you want to ensure that your ongoing clauses remain valid? Then have the agreement checked or drafted before you sign. Good wording beforehand is always cheaper than legal proceedings afterwards.

Frequently asked questions about the final discharge clause

What exactly does a final discharge clause entail?

It is an agreement in which parties declare that, after the execution of the agreement, they have no further claims against each other and grant each other full discharge. It definitively closes the file.

Can a final discharge clause render a confidentiality clause void?

That is possible if the discharge is broadly worded and the confidentiality clause is not expressly excluded. A judge may then rule that the confidentiality clause also falls under the final discharge and has therefore lapsed.

How do I maintain a non-solicitation or non-compete clause in a settlement agreement?

By explicitly including in the settlement agreement that the non-solicitation, confidentiality, or non-competition clause remains in full force and effect and falls outside the final discharge. Make the parties' intentions unequivocally clear and discuss this during the negotiations as well.

Does a final discharge clause also apply to damage that only becomes apparent later?

That depends on the wording and the circumstances. A general discharge does not always automatically cover unknown or future damages. The scope may be more limited than the parties think, which again underscores how important the exact wording is.

Do I always need to have a settlement agreement reviewed?

It is highly recommended. Small differences in wording can have major consequences. A review by a lawyer prevents you from facing surprises afterwards.

Have a settlement agreement drafted or reviewed

Do you want to be certain that your final release clause does what it is supposed to do, without losing important provisions of your employment agreements? The legal experts at MKB Juristen carefully draft your settlement agreement or review an existing draft. See how we can help you with a settlement agreement or with advice on contract law.

Present your situation to us without obligation and know where you stand in no time. Schedule a free intake interview and discuss your settlement agreement with an experienced legal expert.