Are NDAs really that bad?

They’ve been condemned and demonised, yet non-disclosure agreements are still commonplace. Do they deserve their less-than-favourable reputation? And what will it take to regulate them?

Are NDAs really that bad?

For an area of employment law that can most generously be described as ‘niche’, non-disclosure agreements (NDAs) have been making a lot of lawyers rich – and quite a few famous, too – over the past few years. Their elevation from arcane instruments to tabloid bête noire is a complex story. But for HR professionals, the issue is becoming dangerously difficult to ignore.

The irony is that NDAs are nothing new. The legal tools – also referred to as a ‘confidentiality clause’ or, in the media, ‘gagging clause’ or ‘hush clause’ – have for years been included in some employment contracts to prevent an employee divulging certain aspects of their role or company to third parties. 

They are also seen in settlement agreements, when employer and employee resolve a dispute and mutually agree not to share details or take the case to tribunal, usually accompanied by a financial arrangement. They can also be used in COT3 agreements, which are completed following conciliation through Acas.

As Andrew McDonald, partner at BLM and head of the firm’s London employment group, explains, employers typically use an NDA when they don’t want to risk settlements becoming common knowledge in case of ‘copycat’ claims from other employees. “They also don’t want adverse publicity and reputational damage where they’ve settled without admission of liability,” he says. The chances are that many companies may never have an NDA cross their path but, for those that do, the increased scrutiny they have recently been afforded means the stakes are far higher.

Although originally designed for relatively benign purposes, NDAs have recently become synonymous with covering up allegations of bullying, sexual harassment and discrimination – instigated by the scandal surrounding film tycoon Harvey Weinstein, whose former assistant, Zelda Perkins, notoriously broke an NDA to report that she and other women had been sexually harassed by her employer. 

Hot on the heels of Weinstein came revelations of other controversial uses of NDAs, perhaps most notably the Presidents Club dinner at London’s Dorchester hotel in 2017, where young women employed as waitresses were forced to sign NDAs that prevented them revealing alleged groping by guests. 

It’s an incident that Professor Richard Moorhead, chair of law and professional ethics at University College London, describes as a “signature story” in the #MeToo movement. “There’s quite a lot of serious cases where NDAs appear to have been used to silence whistleblowers or victims of other kinds of wrongdoing,” he says. “There’s an anxiety around organisations protecting themselves before they protect their employees.”

And the scale of the emotional cost of being implicated in a dispute involving an NDA is becoming ever clearer. Take a university academic only referred to as ‘Amy’, who told the BBC she was advised to sign an NDA and leave after lodging a complaint of bullying by a senior male academic. The man in question then followed her to her new university and continued to harass her. Her NDA names the ‘serial bully’ in question but means she cannot legally reveal details of the allegations. “It’s crippling my career,” she said. “Because of the NDA I can’t tell people… why he’s doing this. Universities would rather pay off people to leave than push out the person doing the bullying.”

The House of Commons women and equalities select committee heard earlier this year that NDAs were commonplace across all forms of employment dispute, and were now being used to cover up the fact that a settlement ever took place, not just the settlement itself. 

“I don’t think I’ve ever done a settlement agreement without a confidentiality clause,” says Siobhan Fitzgerald, partner at law firm TLT. “Confidentiality is nearly always in there.” For instance, a 2016 investigation by BBC Radio 5 Live found that UK local authorities spent more than £225m on settlement agreements between 2010 and 2015 – most of which included an NDA. More than 2,000 agreements totalling £5.5m were attributed to Cardiff Council alone, which had used them routinely following redundancies, though it said that policy stopped in 2015.

The increased spotlight means the tide is beginning to turn against improper use of NDAs – particularly in cases of sexual harassment. The Equality and Human Rights Commission’s 2018 report, Turning the tables: Ending sexual harassment at work, outlined several key recommendations for the government, including legally preventing companies from asking employees to sign an NDA in harassment cases, and only using an NDA when the employee requests it. In July, the government announced it would open a consultation into proposed legislation, under which organisations would not be able to use NDAs to prevent workers from making a protected disclosure, whistleblowing, reporting an offence to the police or cooperating with a criminal investigation. They would also have to make sure individuals understood the limitations of an NDA in plain English, and received independent legal advice before signing.

Some experts remain sceptical. “The government announcement is quite high level,” says Fitzgerald. “It’s positive that they’re going to start focusing on this, but it’s quite light on detail at the moment.” 

Similarly, Rachel Suff, senior employment relations adviser at the CIPD, points out that Acas already offers guidance around the use of NDAs, but that employers have failed to understand it properly or communicate it to employees. “It’s good the new legal proposals will be coming into force, but legislation doesn’t fix everything,” she says.

Suff adds that much of the media narrative on the topic to date has been relatively simplistic: “I’m glad there hasn’t been an outright ban because NDAs have a legitimate reason for existing, protecting the confidentiality of the employees as much as the alleged perpetrator.” 

But when does this cross the line and become irresponsible? “Technically, NDAs are neither right nor wrong – it’s always about the context in which you’re deploying them,” says Karen Grave, president of the Public Services People Managers Association. “A confidentiality clause is important because it can protect both sides, but no side should feel under pressure, or feel the other has got the upper hand, otherwise it’s not a mutual settlement.” 

Likewise, Fitzgerald emphasises that it’s perfectly lawful and valid that an employer uses an NDA to protect confidential business information, but they move into irresponsible use when employees sign them against their will. “Where this has become problematic is people being forced into these agreements and literally not being able to say anything to anyone about it or run the risk of being in breach,” she says. 

As well as coercion, the balance between reasonable and unreasonable use also lies in the specifics; as Moorhead says, NDAs get into dangerous territory when they “seek to prevent or inhibit whistleblowers of alleged victims of wrongdoing speaking to the police, regulators and other victims of misconduct”.

This also raises the question of who holds ultimate responsibility for ensuring agreements are fair – the employer, or the lawyer drafting the papers. “There’s definitely much more focus on the legal profession advising on the use of NDAs now,” says Fitzgerald. “I think solicitors are becoming much more aware of the fact that we could be in a lot of trouble from our own regulatory body if we don’t abide by this.”

But employers are just as responsible for ensuring agreements are above board. “Some organisations have simply stopped using them. I would guess they see it as a broader commitment to taking harassment and other forms of wrongdoing seriously and settling cases on their merits, rather than whether they can get silence from an individual,” says Moorhead. “It just takes more bravery and willingness to adopt a culture of greater openness.”

But if curtailing the use of NDAs altogether isn’t possible or practical, organisations should at least be trying to reduce the number they issue. Serious questions are being raised about why companies would need to issue settlement agreements across the board for events such as basic redundancies. 

“It damages HR practice and sets an expectation that it doesn’t matter if we don’t get things right because our policy is that we use settlement agreements anyway,” Grave says, advising that employers should only ever be deploying settlement agreements – and therefore NDAs – in “extreme circumstances”, and must have a clear picture of what those circumstances are. 

And for businesses that don’t have access to a legal professional to assist with drafting them, McDonald also highlights that for a confidentiality agreement to be upheld, it should make it clear that the parties keep the settlement itself and the terms of the settlement confidential, as well as the circumstances leading to the settlement, but still allow the employee to report criminal matters to the police, make a protected disclosure or report the matter to a regulator. 

As well as ensuring their appropriate use, employers should also make sure their staff are aware of their rights around settlement and confidentiality agreements. “Often the wider problem is that people have such low awareness of their legal rights, they feel they’re being gagged even with a standard confidentiality agreement, especially around whistleblowing, which can actually be of benefit,” says Andrew Pepper-Parsons, head of policy at whistleblowing charity Protect. 

“More needs to be done by employers to recognise that when they’re in a situation where there’s a settlement agreement, they’re giving all the support to the individual.” 

Similarly, Suff adds that confusion among employees means they’re often unsure whether they can report a serious case of wrongdoing to the right authorities, so they need to be clear on what rights they retain when they sign an NDA.

But aside from basic advice and legal clarity for employees, many experts argue that the underlying problem with overuse and inappropriate use of non-disclosure agreements is a cultural one. “A lot of it is in prevention – making sure the right culture is in place so an organisation wouldn’t even think of trying to cover up harassment or inappropriate behaviour, and HR has an important role to play in that,” says Suff. 

“It means not only having the right policies in place and strong values around dignity and respect, but also making sure they become a reality. It takes a lot for an individual to challenge what might be bullying or harassment in the workplace, so they need to know if they speak up they’ll be listened to.”

As Grave points out, this is particularly pertinent for the public sector. While there’s no data to corroborate claims that the issue is more widespread here, she firmly believes that the effect is worse. “It’s the impact that’s profound rather than the numbers – it’s so much more corrosive on public trust,” she says. “The public sector comes with a legacy of the state looking after people and always having them at heart. Trust and confidence can be gone in five minutes, and it’s incredibly hard to get back.”

At least in Fitzgerald’s opinion, the tide is already beginning to turn. “It used to be the case that an alleged harasser, especially if they were a big biller or brought in the clients, stayed in the organisation and the people who raised complaints were exited,” she says. “But there’s been a real change in the last three to four years, where organisations say ‘that person hasn’t acted in line with our values and they will go, no matter if they’re at the top’, and they’re increasingly willing to take a stand on that.”

Spurred on by Perkins’ example, it’s ever more likely that others will also be encouraged to take a stand and speak up about unscrupulous agreements they have signed and risk legal action to highlight wrongdoing. But does the fact that all eyes are on NDAs mean there’s a chance they will become unenforceable? 

“It might end up that an NDA was completely unenforceable in a situation where someone had alleged harassment,” says Fitzgerald. “I wouldn’t be in favour of that necessarily, because often the confidentiality is protecting the complainant as much as it protects the harasser.” 

Employers are on notice, then, that if they don’t begin using NDAs responsibly and paying due regard to the sort of advice and after-care they offer, the fallout – in terms of negative publicity and unhappy employees – is only likely to increase.