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Is it the end for non-disclosure agreements in the employment context?

26 Jun 2019 | 6 minute read

On the back of the #metoo movement, the widespread use of confidentiality provisions within settlement agreements (more commonly known as Non-Disclosure Agreements ("NDAs")) by employers to settle potential discrimination and harassment claims has been brought into focus.

In an article published by Foot Anstey in January this year, we noted that several policy changes were likely to arise in this area. The House of Commons Women and Equalities Committee ("WEC") undertook a consultation early this year into the use of NDAs in discrimination and harassment cases and the results have now been published.

The WEC have concluded that the routine practice of using NDAs to cover up unlawful discrimination and harassment in the workplace are widespread and concerning and that NDAs should not be used to silence victims of discrimination and harassment. The report concludes that the practice must be discouraged, and wider powers need to be brought in to regulate the use of such agreements. The argument put forward in the report is that NDAs are used oppressively to encourage employees to accept settlement on the employer's terms, which the employee is unable to resist given the imbalance of power between the two. In order to move away from the cover up culture that is associated with the use of NDAs by employers, the key recommendations set out by the WEC are summarised in the report and includes the following:

ensuring that NDAs cannot prevent legitimate discussion of allegations of unlawful discrimination or harassment, or be used to cover up allegations of unlawful discrimination, while enabling employees to move on with their lives;
requiring confidentiality clauses to be expressed in plain English where these are used in settlement agreements;
enhancing corporate governance to require employers to meet their responsibilities to protect employees from discrimination, including requiring named senior managers (outside of HR) to oversee anti-discrimination and harassment policies and procedures and the use of NDAs in such cases.
making the tribunal system more friendly towards employees making discrimination claims by introducing (within the next two years) (a) a presumption that employers will be made to pay the employee's costs if the employee's claim is successful in cases involving sexual harassment; and (b) a substantial increase in damages available to the claimant under the Vento guidelines. It also recommends a greater time limit of six months for the bringing of a sexual harassment, maternity or pregnancy discrimination claim, and perhaps an increase in respect of other discrimination claims too;
Requiring employers to meet the costs of the employee seeking legal advice on, and negotiating the terms of a settlement agreement, with costs being payable even where such an agreement is not signed and concluded.
For the Government to take the following steps:
- Within the next six months, beginning an awareness programme for employers and employees on dealing with grievances and investigations into allegations of unlawful discrimination and harassment (including investigations where a settlement agreement is signed during the investigation);
- Consider if employers should be required to investigate all discrimination and harassment allegations even where settlement is agreed.
- Within the next year, introduce a requirement for employers to provide at least a basic reference, so as to remove the use of the reference as a bargaining tool;
- carry out a review of and to report on the tribunal system to understand if any particular groups are disadvantaged by the way in which the system operates and whether changes are required;
- consider the support system currently available to litigants in person and to ensure there is guidance for judges and litigants as to what circumstances in which refusing to settle may be considered "unreasonable";
- make it an offence for an employer or their professional adviser to propose a confidentiality clause designed or intended to prevent or limit the making of a protected disclosure or disclosure of a criminal offence; and for it to be a professional disciplinary offence for lawyers advising on agreements to use provisions which are reasonable understood to be potentially unenforceable;
- ensure that NDAs cannot prevent signatories from sharing information that may be helpful to a potential discrimination or harassment complaint or claim by another employee.
- For the Law Society's guidance on the use of NDAs to be reconsidered.

The WEC have recognised that there is a place for using NDAs in matters to settle genuine disputes between the parties and that this may even be preferable for employees who would otherwise risk bringing a claim in an employment tribunal where there is no guarantee of success.

However, the report underlines the need for a balance of power between the employer and employee when agreeing NDAs. The WEC recognise that many employees who sign an NDA suffer traumatic psychological issues as a result of the workplace issues and consider that more needs to be done to deter the use of NDAs to cover up such workplace behaviour.

What next?

At present, the legal position regarding the use of NDAs remains unchanged. The recommendations urge the government to consider and implement changes to the law where appropriate, but only set loose timescales for legislating and are subject to the Government deciding whether or not to implement them.

Whilst it may take some time for any legal changes to pass through parliament, the tide is turning in respect of NDAs. The Solicitors Regulation Authority ("SRA") has issued guidance that solicitors have a duty to ensure that NDAs do not prevent the reporting of any misconduct or offence to the relevant authorities. The solicitor who acted for Harvey Weinstein drafting the NDA that his London based employee signed is subject to an ongoing SRA investigation, directly as a result of his involvement in drafting the NDA.

At this stage, what is unclear is whether any changes brought into effect on the basis of the report will apply retrospectively to NDAs entered into before the legislation, if any, comes into force.

Practical Next Steps for Employers

It is difficult to predict with any certainty what changes are likely to be adopted based on the WEC's recommendations, and when we may see these changes.

However, there are some practical steps that employers could be taking now which include:

Reviewing template confidentiality or non-disclosure provisions within settlement agreements to ensure that they are clearly drafted, and specific in identifying both (a) what information can be disclosed, and (b) the relevant persons to whom such information can be disclosed.
Removing any clause that prohibits an employee from (a) reporting any potentially criminal behaviour to the police; (b) making a protected disclosure (whistleblowing); or (c) where the circumstances mean that the employee may need to seek medical assistance, to allow for that;
Recognising that, even where an NDA clause is technically enforceable, if an employee chooses to make a disclosure in breach of the NDA, any legal recourse available to the employer may not be enough to protect it from any potential damage caused to the employer's or any alleged perpetrator's reputation.
Managing the risk to the business of conduct that could amount to discrimination or harassment by having relevant policies in place and by providing regular relevant training to employees and managers; and keeping a record of all training;
Having in place robust policies and procedures in place to undertake thorough investigations into allegations of discrimination or harassment in the workplace.

Employers should also assume that correspondence and documentation in a disciplinary or grievance could be disclosable to a tribunal, and therefore, any actions taken, or statements made by any representatives of the employer should be fair, in accordance with procedure, and not damage the reputation of the Employer should they become public knowledge.

A link to the full report is available here. If you would like to discuss any points arising from the results of the report or if you would like to look at rolling out manager training on conducting disciplinary and grievance investigations please get in touch your usual Foot Anstey contact.