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Legal experts Chris Hadrill and Alex Hodson outline the background to non-disclosure agreements in the
workplace and ask whether they are still appropriate, given concerns about their potential misuse to silence victims of abuse.
Non-Disclosure Agreements, or ‘NDAs’ (occasionally referred to as ‘gagging clauses’), were created during the 1940s in the context of maritime law; the use of these clauses altered and developed in the 1980’s as technology developed and it became important for organisations to protect their business secrets, such as inventions, intellectual property, and finances, from being exploited by third parties, and the use of NDAs became common in the workplace, commonly signed when an employee started employment with a business (but also when their employment with the business finished).
Over time, the use of NDAs in an employment context has percolated into not only the drafting of stand-alone contracts of employment and confidentiality agreements, but also into the draft of settlement agreements (which are generally used when an employee’s employment is terminating).
There has been much controversy over the use of NDAs in an employment context, with political movements such as the #MeToo movement highlighting the use of confidentiality clauses in settlement agreements to (attempt to) silence victims of sexual harassment; the spotlight has also been shone on the use of confidentiality clauses to allegedly attempt to prevent employees from ‘blowing the whistle’ in their organisation, with a number of cases emerging where NHS whistleblowers argued that the use of a settlement agreement had either had the purpose or effect of preventing them from pursuing their complaints.
A BBC investigation in 2020 found that over 300 NDAs were used by UK universities to deal with student complaints, some of which were related to sexual harassment. The impact of these cases has forced the government and regulatory bodies to review and implement change in the law and practices of legal advisers in dealing with NDA’s and confidentiality clauses.
With so much controversy, it is important to be aware of when an NDA can be appropriately used and can be reasonably enforced in the workplace.
Generally, NDAs are rarely seen in the workplace as a stand-alone agreement, and can more commonly be commonly found within a contract of employment (under clauses titled ‘confidential information’ or ‘confidentiality’). These clauses are usually specific in defining what information must be kept confidential, during and after an employee’s employment, such as intellectual property, client or customer information, inventions and so on. The intention behind these is to bring attention to the true purpose of NDAs in protecting legitimate business secrets. A court would normally find these types of clauses reasonable as a business is entitled to protect their business confidential information, without detriment to the employee.
Alongside a contract of employment, most employers will issue a whistleblowing policy to ensure that there is no misunderstanding of an employee’s rights in such circumstances, and to prevent a situation where an employee feels that their confidentiality obligations will prevent them from making a genuine complaint.
An employee may also commonly find an NDA in a settlement agreement, with this clause frequently labelled as a confidentiality clause. These clauses will usually reiterate the confidentiality clause within the employee’s contract of employment and likely extend the obligation of confidentiality to cover the existence, terms, circumstances relating to the termination of employment and the negotiations of the settlement agreement. However, it will normally be the case (or at least should be the case) that this confidentiality obligation will apply to both the employer and the employee, providing assurances to the employee that that they can move on from their employment without the fear of details of the termination of their employment being disclosed to third parties (such as prospective employers).
It is important to note that an NDA in a settlement agreement can under no circumstances be used to prevent an employee from making a protected disclosure under the Public Interest Disclosure Act 1998 (“PIDA”), nor complying with a court order or assisting the police with a criminal investigation (among a number of exceptions). NDAs can therefore normally only be enforced in circumstances where the employer is attempting to protect genuinely confidential business information or the circumstances of a termination of employment which don’t engage PIDA. These protections are set out in section 43j of the Employment Rights Act 1996 and an employee’s settlement agreement should be drafted to make this clear.
There are also further protections available to an employee when entering into a settlement agreement, such as the ability to obtain independent legal advice on the settlement agreement (normally funded by a contribution by the employer to the employee’s legal fees) and, ideally, a defined window of time of up to 10 days in which to consider the offer being made (as recommended by the ACAS Code of Practice on settlement agreements).
There are a number of existing and proposed restrictions on the use of NDAs in the UK, including:
1. Legal protections built into the Employment Rights Act 1996
2. Guidance from the SRA to solicitors on the use of NDAs in the workplace
3. Legislation to prevent the inappropriate use of NDAs by educational bodies
4. Proposed new legislative restrictions on the use of NDAs in the workplace
Section 43j of the Employment Rights Act 1996, as detailed above, sets out the principal protection for employees against the misuse of NDAs in the workplace, and employment-related settlement agreements should always be drafted to make clear the employee’s rights to make disclosures which are covered by section 43j.
The Solicitors Regulation Authority has also issued helpful guidance in a warning notice on how solicitors should deal with NDAs in the context of settlement agreements, specifying that solicitors must ensure that any settlement agreement that they are advising on expressly sets out the exceptions to the confidentiality clauses, such as an employee still being allowed to make protected disclosures under PIDA – these clauses are normally drafted to define the caveats to any confidentiality clause in a settlement agreement (such as allowing the reporting of a criminal offence, a breach of health and safety, or reporting a regulatory breach to the appropriate regulatory body). Solicitors should also take care to advise their clients on the nature and effect of NDAs and the exceptions to NDAs.
The Higher Education (Freedom of Speech) 2023 received Royal Assent in May 2023. Once this comes into force, it will prevent English Higher Education providers, such as universities, from entering into NDAs with staff, students, members or visiting speakers in relation to sexual abuse, sexual harassment, sexual misconduct and other types of bullying or harassment.
The #Metoo Movement, not only heightened the interest in NDAs and the misuse of them, but also initiated the government to review the law on NDAs. The Women and Equalities Committee (WEC) commenced an inquiry in November 2018 and proposed recommendations in June 2019 to the Government.
The reforms suggested by the WEC include:
That no confidentiality clauses, whether in a contract of employment or settlement agreement, to be used to prevent an employee from making a disclosure to policy, regulatory body, legal professionals, therapists, counsellors. However, many legal advisers have already started taking this approach by inserting such clauses into settlement agreements.
It will become mandatory to obtain independent legal advice on the limitations of such confidentiality clauses.
A new right that enables employees to bring a claim for compensation in the employment tribunal where any confidentiality clause does not meet the new drafting requirements.
Settlement agreements that do not follow the legislative requirements will be void in its entirety, without voiding the remaining terms of a settlement agreement.
Any form of agreement is open to abuse, if not carefully drafted and regulated, and particularly so when there are significant inequalities in power structures (which is often the case in the workplace). In workplaces this can mean that, without sufficient scrutiny and oversight, the use of settlement agreements can be abused. However, equally, the appropriate use of NDAs in settlement agreements in an employment context can not only be of benefit to an employer, for obvious reasons, but can also be of significant benefit to an employee – they provide assurances of confidentiality to the employee, assist the employee in obtaining new employment (in that they prevent an employer from making adverse comments about the employee to prospective employers), and provide a ‘clean break’ to the employee (which can be important if the employee is suffering from anxiety or stress, particularly if this is caused by their previous working environment).
NDAs are still relevant and appropriate in the workplace where it is used for the original purpose of protecting legitimate business information, and not to cover up potentially illegal activity – there are significant safeguards built in to prevent their misuse, and the media and regulatory spotlight that has been shone on the inappropriate use of NDAs can hopefully drastically reduce further such inappropriate use.
*Chris Hadrill and Alex Hodson are solicitors at Redmans, a specialist firm of employment lawyers based in London.