Legal

Should non-disclosure agreements be confidential or not?

13 Jan 2020 By Tessa Fry

With new rules reducing the scope of confidentiality provisions in NDAs, Tessa Fry weighs up the arguments for and against their use

Nobody can be forced to sign a non-disclosure agreement (NDA) – or, more accurately in the employment context, nobody can be forced to sign the confidentiality and non-disparaging provisions of a settlement agreement. The key requirement for a valid settlement agreement is for the employee to have independent legal advice before they sign. The employer usually contributes towards legal fees for this purpose.

Settlement agreements provide certainty and finality for both businesses and employees. They can be used to settle existing or potential tribunal claims, but are commonly used on termination where there is no particular dispute. Under the standard terms, employers do not admit liability and employees receive compensation in exchange for giving up their employment rights, and are then unable to bring any claims against the company. 

Over the years, settlement agreements have become more complex, with detailed provisions on confidentiality and non-disparagement (the NDAs). Standard provisions include both parties agreeing to keep the settlement figure and background details confidential, together with an agreed reference and mutual ‘no bad-mouthing’. This protects both parties. 

Until recently, these NDAs were generally accepted. However, since the #MeToo movement, the various disclosures made regarding NDAs in sexual harassment cases have led to consideration by the Women and Equalities Committee and the Court of Appeal. The committee was concerned in particular with a settlement agreement with Zelda Perkins, Harvey Weinstein’s (pictured) former PA who worked for him 20 years ago. The agreement prohibited disclosure to the police and medical practitioners, and even prevented the employee having a copy of the agreement (it had to be viewed in the presence of a solicitor). 

Although most NDAs do not contain these prohibitions, the committee concluded that cases of workplace sexual harassment and discrimination were being covered up by the use of these agreements, and in particular their confidentiality clauses. It proposed that employees signing such agreements should get specific advice on the limitations of confidentiality clauses. 

By contrast, in the Philip Green/Arcadia injunction application, the Court of Appeal considered settlement agreements with five former employees and noted their legal fees were paid in full, they were not pressurised to sign the agreements and there was no restriction on reporting to the police or whistleblowing. So the disclosure of the allegations by two former employees to the Daily Telegraph was in breach of the NDAs. Accordingly, the injunction was granted to protect the employer’s confidentiality – confidentiality that the employees had agreed to in exchange for very high compensation. It was noted that the allegations were denied and two other ex-employees supported the injunction application.

In responding to the committee’s report, the government has stated it will introduce new legislation to ensure confidentiality clauses in settlement agreements cannot prevent individuals from making disclosures to the police, regulated health and care professionals or regulators. There will be new requirements for the mandatory independent legal advice on a settlement agreement to include the limitations of any confidentiality clause. Confidentiality clauses that do not comply with the new legal requirements will be void. 

It is not known when the legislation will be introduced. However, some aspects have already taken effect because of regulatory pressures on solicitors. Under new SRA guidance, if a solicitor is drafting clauses that are unenforceable, such as clauses preventing reports to the police, this may lead to disciplinary action.

The standard precedent now takes this guidance and government proposals into account and there are long lists of categories to whom disclosure may be made – in particular, the police, regulated health and care professionals and any professional regulator.

If employers are no longer able to rely on confidentiality provisions in settlement agreements then they may be less inclined to settle disputes. This may leave the employee with applying to a tribunal as the only other remedy available to them – with the risks and costs involved. 

Tessa Fry is head of employment at Grower Freeman

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