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Employers have for many years used confidentiality clauses or non-disclosure agreements, commonly known as “NDAs”, in employment contracts and settlement agreements. The recent high-profile scandals of the President’s Club dinner, where female workers were presented with confidentiality agreements that they had to sign before they could start work, and the Harvey Weinstein affair has led to the exposure of the use (and abuse) of such arrangements and debate as to whether they involve the improper “gagging” of individuals and allow employers and perpetrators of sexual harassment to avoid scrutiny and indeed the proper consequence of their actions. This week the House of Commons Women and Equalities Commission published a report on Sexual Harassment in the Workplace, which included a section on the “advantages and disadvantages of using non-disclosure agreements in sexual harassment cases, including how inappropriate use of such agreements might be tackled”.

What is an NDA?

An NDA is an agreement between parties to keep certain information, disclosed in the course of a transaction or period of employment, confidential and to use that information only for the particular purpose for which it is disclosed. Whilst there has been justified criticism of NDAs they do have a legitimate business purpose. They are most commonly used as a way of keeping financial information or trade secrets private, so that business information can be shared without the worry of it being misused for commercial gain.

In the context of employment law, NDAs are frequently incorporated in to settlement agreements whereby an employee (usually on termination of employment) gives up rights to make claims against the employer in return for payment of sum of money or other agreed arrangements so that neither party can speak about events that happened during the employment, the reasons for a termination or the terms of settlement (including financial payments to be made). These NDAs normally also contain non-disparagement clauses whereby both parties agree not to make derogatory statements about each other.

UK settlement agreements require independent legal advice to have been taken by the individual, or for a compromise to take place through ACAS conciliation, for a settlement to be valid. These provisions are intended to ensure that individuals are not signing away their statutory employment rights without having a full understanding of what they are agreeing to and to balance out the unequal bargaining power between an employer and individual employee by including lawyers or ACAS in the process.

It is important to note that NDAs cannot be designed to stop an employee from making a protected disclosure (commonly referred to as whistleblowing) because such provisions would be void under section 43J of the Employment Rights Act 1996. However, where the NDA is a standalone contract and not part of a settlement agreement, the Commission highlighted that someone signing an NDA containing this may not be aware that this would be unenforceable if it was breached. Even if they suspected that it was not enforceable, they would most likely need legal advice to ascertain whether they were entitled to protection under whistleblowing laws.

Even if the statutory requirements for a protected disclosure are not met, there are circumstances in which public policy means that an NDA will be unenforceable. For example, where an NDA seeks to prevent the disclosure of a crime and there is a serious public interest in the information being released then it will not be possible to rely upon the NDA . In addition, where an individual is obliged by law to disclose information for example, because they are required to give evidence in court that disclosure will not be in breach of any NDA.

Report
The report by the Women and Equalities Commission acknowledges that NDAs have legitimate uses in employment contracts but highlights their concern that they may be being used “unethically by some employers to prevent damaging stories about sexual harassment from surfacing.” Due to the confidential nature of NDAs, the committee noted that it is hard to quantify the number of NDAs currently being used to silence victims of sexual harassment.

Recommendations from report
The committee put forward recommendations including:
1. The Government should legislate to require the use of standard, approved confidentiality clauses. The Committee want them to be written in clear, plain English setting out the meaning, effect and limits of confidentiality clauses, including a clear explanation of what disclosures are protected under whistleblowing laws and which cannot be prohibited or restricted.
2. The definition of protected disclosures and prescribed persons under whistleblowing legislation should be widened to include disclosures of sexual harassment to the police and all regulators, including the Equality and Human Rights Commission and Health and Safety Executive, and to any court or tribunal.
3. The Government should make it an offence for an employer or their professional adviser to propose a confidentiality clause designed or intended to prevent or limit the making of a protected disclosure or disclosure of a criminal offence.
4. Use of provisions in confidentiality agreements that can reasonably be regarded as potentially unenforceable should be clearly understood to be a professional disciplinary offence for lawyers advising on such agreements.

Comment
NDA’s generally serve a legitimate function in protecting information which both employers and employees may wish to treat as confidential and a ban on these would interfere with contractual freedom. Many employers would simply not countenance settlement of claims which may have serious reputational implications if they could not secure confidentiality. Equally, employees may often consider the privacy afforded by confidentiality provisions to be welcome or least a price worth paying to achieve compensation and the avoidance of the costs and stress of pursuing a legal claim against their employer.

However, the recommendations in the Commission’s Report will be seen by many as a step in the right direction in stopping those who have suffered serious sexual harassment in the work place from being improperly silenced and from the perpetrators of sexual harassment being held to account.

It is unclear what the prospects are for the Government adopting any of the Commission’s recommendations and introducing corresponding changes to the law but Employers who use NDAs should consider carefully how these clauses or documents are drafted and the circumstances in which it is appropriate to use them.

If you have any queries about any of the issues raised above please do not hesitate to contact a member of the Stronachs Employment Team.

Eric Gilligan, Partner and Ross Michie, Trainee Solicitor

 

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