Crackdown on the misuse of NDAs

Commonly referred to as “gagging clauses” and described in the headlines as “bullying tactics” and “legal weapons for the rich and powerful”, the non-disclosure agreement (NDA) has been a topic of major controversy following revelations about their inappropriate use in high-profile scandals (such as the Harvey Weinstein scandal and the Presidents Club dinner). Some commentators have gone as far to suggest that their use in the context of workplace harassment cases is wholly inappropriate and have called for them to be banned. But is it right to attribute blame to NDAs for past scandals and – if so – should they be banned (or restricted) to prevent future ones? These are just some of the questions that have been the consideration of multiple inquiries, consultations and reports in recent months.

On 21 July 2019, the Government published a response to its consultation on proposals to prevent the misuse of NDAs in situations of workplace harassment and discrimination (the Response). This article considers the proposals announced in the Response, including whether they go far enough in tackling the misuse of NDAs.

But first, to set the scene, what is an NDA?  Broadly speaking, it is a term used to refer to a provision (or provisions) which prevent the disclosure of confidential information. In an employment context, these provisions are routinely included in both employment contracts and settlement agreements and play a crucial (and legitimate) role in protecting the confidential information of a business. Without express contractual provisions, generally only information which amounts to a “trade secret” will be protected from disclosure by an employee both during and after employment[1]. In order to protect key sensitive documents, such as client lists and financial information, it is standard practice for employment contracts to include confidentiality wording. This type of wording – which is generally considered uncontroversial – may also appear in settlement agreements, for example where the provisions in an employment contract are inadequate or have fallen away due to a breach of contract.

The other – and more controversial – type of NDA (which is the focus of public scrutiny and this article) is that which purports to preclude an employee (current or former) from speaking out about incidents that amount or may amount to harassment, discrimination, victimisation (or some other unlawful conduct). These provisions are typically found in settlement agreements but can occasionally – as the Presidents Club dinner case exemplified – be found in employment contracts (in which case the preclusions would necessarily be in respect of future conduct).

From a legal perspective, there are some key limitations which already exist on the enforcement of NDAs. In summary, an NDA will not prevent an individual from:

 

  • raising a protected disclosure under the Employment Rights Act 1996[2]. A disclosure of information which satisfies the requirements of the whistleblowing legislation will not be in breach of any express or implied contractual duties.

 

  • disclosing information which does not have the “necessary quality of confidence” (Coco v Clark). There is no absolute test as to what types of information will have such a quality, but it has been interpreted fairly broadly (and it is assumed by many practitioners, although there is no case law on this point, allegations relating to sexual harassment would fall within this category).

 

  • initiating a claim for harassment or discrimination under the Equality Act (or another statutory claim such as unfair dismissal) unless it is included in an agreement which satisfies the statutory requirements governing settlement agreements. An NDA purporting to prevent any of those things in an employment contract or standalone agreement, therefore, would be void for that (and potentially a number of other) reason(s).

 

  • disclosing information in circumstances in which public interest overrides the contractual duty of confidentiality. This exemption is not particularly well defined in law, which makes it difficult to advise upon with any certainty, but would cover the reporting of a criminal offence as well as where there is a genuine public interest in disclosing other information, for example where there is misconduct of such a serious nature that it ought to be disclosed to others[3] (including recipients who fall outside the ambit of the Public Interest Disclosure Act 1998).

 

  • disclosing information where required to do so by law – for example, where an individual is required to give evidence in court.

 

In addition to the above, on 12 March 2018 the SRA issued a Warning Notice (intended as a reminder of the existing position rather than a change in the rules on the use of NDAs) which provided that NDAs should not be used:

 

  • as a means of preventing, or seeking to impede or deter, a person from:

 

  • reporting misconduct to a regulator;
  • making a protected disclosure under the whistleblowing legislation;
  • reporting an offence to a law enforcement agency (such as the police);
  • co-operating with a criminal investigation or prosecution; or

 

  • as a means of improperly threatening litigation against, or otherwise seeking improperly to influence, an individual in order to prevent or deter or influence a proper disclosure.

 

Government Response published 21 July 2019

On 21 July 2019, the UK government announced plans for new legislation in its response to its consultation on proposals to prevent misuse of NDAs in situations of workplace harassment or discrimination (the Response). The Response also addressed a number of the recommendations set out in the Women and Equalities Committee’s report on the use of NDAs in discrimination (published on 11 June 2019), although a full response to that report will follow.

In the Response, the government reiterated its view that confidentiality provisions can serve a legitimate purpose in both employment contracts and settlement agreements, but that using these clauses to silence and intimidate victims of workplace harassment and discrimination cannot be tolerated. Hence, it will legislate to, in summary:

 

  • ensure that individuals cannot be prevented from making a disclosure to the police, regulated health and care professionals (e.g. doctors, social workers) or legal professionals;

 

  • ensure that the limitations of confidentiality provisions are clear, in plain English, within a settlement agreement and in a written statement for an employee;

 

  • require that the mandatory independent legal advice on a settlement agreement includes the limitations of any confidentiality clause; and

 

  • introduce new enforcement measures in relation to confidentiality clauses that fail to comply with legal requirements – for example, confidentiality clauses that do not follow new legislative requirements will be void.

 

New guidance will also be produced by the EHRC, SRA and ACAS to clarify the law and good practice.

Proposals that were considered by the government but ultimately rejected include the introduction of standard-form confidentiality wording and a reporting duty in relation to use of confidentiality clauses which were deemed (for different reasons) too difficult to implement in practice.

The increased clarity that the new legislation will bring on the limitations of NDAs – as well as the requirement at law to make this clear to the individual signing the agreement – is welcome and should help to end ambiguity about what employees’ rights are. However, overall, the proposals do not go beyond what is already considered best practice in this area (particularly in view of the SRA Warning Notice) indicating that cultural shift has been more impactful than legislative change is likely to be.

Some may argue that the proposals do not go far enough to ensure that individuals are appropriately protected from the misuse of NDAs. For example, the right to disclose to “regulated health and care professionals” would not extend to (unregulated) therapists and counsellors; the ability to speak to such a person being potentially integral to victims’ ability to move on from the events. In addition, the rejection of standardised wording for confidentiality clauses means employers will still have a degree of control over how the clauses are constructed (creating scope for misuse) and some may see the decision against this as a missed opportunity to bring an immediate change in lawyer and employer practice in this area.

However, too much regulation in this area – and in particular a total ban on the use of NDAs in sexual harassment cases – risks interfering with parties’ contractual freedom and may serve to discourage employers from reaching settlement with employees, driving more cases to the Employment Tribunal and all the costs, time and stress involved on both sides of such litigation.

Importantly, regulating the use of NDAs can only go so far in tackling the issues. The reason this debate is alive is because harassment and discrimination in the workplace are still rife, and it is crucial that we continue to focus on preventing this type of behaviour occurring in the first place. This is the subject of a further Government consultation (due to end on 2 October 2019) and we can expect to hear calls for legislative change in this regard (for example, a mandatory duty on employers to protect workers from harassment and victimisation in the workplace).

In the meantime, it is clear that careful consideration needs to be given to the use and drafting of NDAs, and the onus continues to fall on legal advisers on both sides of disputes to ensure that NDAs are not being used in an abusive manner.

Beth Hale Partner, C M Murray, specialising in Employment and Partnership law and also acts as General Counsel for the firm. Beth is extremely well-regarded and has a particular strength in explaining and simplifying complex legal concepts

 

Harriet Riddick, Associate C M Murray, specialising in partnership and employment law. Harriet advises clients across many sectors on all aspects of UK contentious and non-contentious employment law issue

[1] Faccenda Chicken Ltd v Fowler [1984] ICR 589

[2] s43J Employment Rights Act 1996

[3] Initial Services Limited v Putterill [1967] 3 ALL ER 145

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