Confidentiality or non-disclosure agreements (NDAs) are legal contracts that restrict what the parties can say about a matter (frequently labelled by the media as 'gagging clauses').They are often used by businesses and employers to safeguard trade secrets and business know-how.
#MeToo exposed the misuse of NDAs by some employers, and their lawyers, to silence victims of sexual harassment. Given the public outrage that followed, employers could be forgiven for wanting to avoid them altogether. However, there are situations where NDAs are perfectly legitimate and, when used correctly, can give employers comfort on sensitive matters.
Using an NDA
While recent media and government focus has been on the misuse of NDAs to hush up allegations of misconduct, NDAs are actually common in a wide range of scenarios. Some examples include:
- Commercial transactions, where parties are given access to sensitive information as part of the due diligence process.
- In the emerging tech sector, where development is often outsourced to contractors.
- To prevent a departing employee from taking trade secrets and critical business know-how to a competitor.
- Settling a dispute or grievance privately without the need for litigation and with minimal reputational damage to either party.
In March 2018, the Solicitors Regulation Authority issued a practice direction to practitioners, reminding them of the risks associated with using, or advising on the use of, NDAs and warning against inappropriate use.
The Women and Equalities Committee (WEC) has now published its report on the use of NDAs in discrimination cases. This followed on from the its 2018 report on sexual harassment in the workplace, which raised the question of whether legally compliant NDAs might be deterring complainants from raising concerns about sexual harassment – an issue the government has since pledged to consult on.
The WEC believes that employer misuse of NDAs is only one part of a wider problem, with legislative, regulatory and even judicial measures currently failing to protect employees from discrimination and abuse of power.
A number of the recommendations aimed at dealing with these and other problems linked to preventing harassment and discrimination at work are set out below:
- Requiring employers to investigate all discrimination and harassment complaints regardless of whether a settlement is reached.
- Requiring employers to cover the cost of employees obtaining legal advice and the negotiation of a proposed settlement agreement, regardless of whether it is signed.
- Requiring employers to report annually on the number of discrimination and harassment complaints received and their outcome, as well as the number of settlement agreements they have agreed.
- Extending the time limit for bringing a discrimination claim from three to six months.
- Significantly increasing the Vento bands to recognise the non-financial impact of discrimination.
- Use of standard, plain English confidentiality clauses in settlement agreements.
While the proposals above are only a snapshot of the recommendations made, it is clear that the government is being pressured to ensure that more is done to prevent harassment and discrimination in the workplace and lift the lid on unscrupulous employers that misuse NDAs.
With NDAs firmly under the microscope, employers and in-house lawyers should look at the following questions when considering their use:
- What is the purpose of the NDA in the particular circumstance?
- Is it necessary?
- Is it lawful?
- Who is going to be bound by it? One party? Both?
- How long will it last?
- Is the wording clear and easily understood?
NDAs will remain a hot topic of discussion and their use will likely face ongoing controversy. However, it's important to remember that when used appropriately and created by legal professionals for legitimate purposes, they can be a valuable tool in safeguarding a business.
Rob Tubman is an employment solicitor at TLT