How businesses can avoid misusing NDAs

Richard Fox and Georgia Roberts explain why employers dealing with sexual misconduct claims should tread carefully when requiring an NDA to be included in a settlement agreement

How businesses can avoid misusing NDAs

The Can’t Buy My Silence campaign, launched recently by Zelda Perkins and law professor Julie Macfarlane, encourages brave individuals to share their experiences of non-disclosure agreement (NDA) misuse, which is likely to make uncomfortable headlines for some employers.

NDAs or confidentiality clauses often appear in settlement agreements, which trade an employee’s ability to bring claims at the employment tribunal for a settlement sum. Employees must receive independent legal advice before they can sign any such agreement and employers commonly make a contribution towards legal fees, although they are not obliged to. 

Often this is for a fixed fee which covers basic advice focusing on the employee’s potential employment tribunal claims, but individuals should also be specifically advised that their rights to make protected disclosures, or disclose information to regulators or law enforcement cannot be signed away. 

Despite receiving independent legal advice, there is still concern about the amount of pressure individuals face before entering into settlement agreements. They are often contingent on terminating employment, meaning victims are having to deal with the abuse they have suffered and the loss of their employment concurrently. This can make entering into such agreements feel like a necessity for individuals facing a loss in income.

Although NDAs originate from businesses’ need to protect their trade secrets and other intellectual property, their use in relation to cases of sexual misconduct in the workplace is under scrutiny, particularly where they are said to buy victims’ silence, while leaving those accused of wrong-doing without consequence.

In reality, NDAs cannot be used to prevent individuals from making protected disclosures or disclosing information to relevant regulatory authorities or other law enforcement agencies, such as the police. The issue is that in the difficult circumstances in which many individuals find themselves in these cases, they are not aware of these rights (which they retain) and/or cannot risk the adverse financial consequences if they do make such disclosures, fearing how the employer may react if they do. 

Some companies, including taxi giant Uber, have already taken matters into their own hands by deciding they will no longer require victims of sexual harassment to sign up to NDAs when agreeing to settle their cases. 

For others the scope for misuse is narrowing. The campaign’s launch coincides with the introduction of a parliamentary bill by MP Maria Miller to restrict the use of NDAs and follows a government consultation on the issue in 2019. 

Furthermore, in November 2020, the Solicitors Regulatory Authority (SRA) issued a warning notice for solicitors who provide advice on NDAs confirming that their duty to act in the public interest and uphold the rule of law trumps their duty to act in the best interests of their client. Employers could find their lawyers decline to act if they consider they may be being asked to facilitate the improper use of an NDA.

So where does all of this leave employers considering the use of NDAs in an employment context going forward? 

The issue of sexual harassment in the workplace has not gone away. Historic cases continue to come to light and post-lockdown new complaints are rising, with victims taking action due to the prospect of facing their abusers again in the workplace. New patterns of abuse may also emerge with offices reopening and the relaxation of work from home restrictions. 

The key message to employers dealing with #MeToo complaints is to tread very carefully when requiring an NDA to be included in a settlement agreement. The complainant, the accused and the company will all have different interests to protect but the imbalance of power that exists between the company and the complainant can be particularly problematic in these circumstances. 

This is now an area that is ripe for further development. We are currently waiting to see the outcome of Maria Miller’s Private Members’ Bill and we may well see the introduction of new NDA-related legislation coming into force in the not-too-distant future.   

Richard Fox is a partner and Georgia Roberts an associate in the employment team at Kingsley Napley LLP