NDA stands for non-disclosure agreement. Traditionally in the UK and the US this term is used as shorthand for a confidentiality agreement used in a variety of commercial relationships where confidential information is to be shared with individuals who would not otherwise be bound by any confidentiality obligation. NDAs are used in many scenarios from mergers and acquisitions, joint ventures and customer and supplier arrangements.
NDAs have also long-existed in the world of employer-employee relations. NDAs in the employment context do not generally exist in separate documents and are instead typically found within other documents such as a contract of employment or a settlement agreement (previously known as a compromise agreement) entered into on termination of employment, under the heading “confidentiality” or “non-derogatory comments” clause.
The Harvey Weinstein scandal that led to the #metoo movement has thrown the use of confidentiality clauses in the employment context into the spotlight, and the term NDA is now regularly used in the press as a catchall term for any agreement containing confidentiality obligations, in particular those used in the context of sexual harassment claims where they are seen as gagging victims in return for payments.
The use of confidentiality clauses in settlement agreements is widespread; if you have entered into a settlement agreement, it is very likely that it contained a confidentiality provision and therefore you have signed up to an NDA with your former employer. Below we take a look at some further frequently asked questions in this area, why there is so much concern about the use of confidentiality clauses in the employment context and what is being done about it.
What is a settlement agreement?
A settlement agreement is a legally binding contract made between an employer and an employee. Settlement agreements are commonly used by employers on termination of employment as an effective way of ensuring that they are not sued by the employee and therefore avoid the associated expense, bad publicity and management time associated with a court or tribunal claim. However, they can also be used whilst the employee is still employed, or after employment has terminated, to settle a claim. In order for the settlement agreement to be binding, the employee must receive their own legal advice as to the terms and effect of the settlement agreement.
How do settlement agreements work?
In essence the employee receives a sum of money in return for signing away their legal rights to sue their employer (often referred to as “paying off” the employee). In addition the employee is usually required to keep the settlement, and the circumstances leading up to it, confidential and not to make any derogatory comments about their employer, its directors, agents or employees.
The use of settlement agreements is not always negative. Increasingly larger employers insist on their use in respect of mutually agreed terminations where, for example, an employee is given an enhanced redundancy or goodwill payment to which they have no legal entitlement.
Why are NDAs and confidentiality clauses commonly found in settlement agreements?
Confidentiality may be required for a variety of reasons such as:
• The employer might not want word getting out to their workforce that they are “a payer” and therefore find themselves frequently threatened with claims by disgruntled employees with little or no merit in the hope of securing a similar payment;
• The employer may believe the allegations to be unfounded, but have commercial reasons for settling the (potential) claim. By way of a crude example, they may have been advised that the legal cost of defending an employment tribunal could be £15,000, but the maximum value of the claim is £8,000. Therefore if they can secure a settlement in a reasonable sum, without admitting liability, the net loss to the business will be less, although it may leave a bad taste in the mouth;
• The employer may not have given it much thought and be using an agreement that was drafted in different circumstances as a template for future use; or
• The employer may realise that there is case against them, and/or an employee in their business, and wish to hold their hands up and settle the claim without wasting legal costs and everyone’s time on mounting a resistance with little prospect of success. Of course an out-of-court settlement with a confidentiality clause or NDA, also avoids the negative publicity, and potential damage to their business reputation, that will ensue if the claim is reported in the press.
These are just a few examples of the reasons commonly encountered. Every employer who enters into a settlement agreement containing an NDA has their own reasons for doing so.
Are NDAs in an employment context a bad or negative thing?
Potentially. NDAs are seen as gagging employees, giving the impression that they cannot go to the police (or other regulator) or disclose the wrongdoing to close family and medical advisors. This is of particular concern where harassment, discrimination and bullying has occurred. Although any clause that seeks to prevent an employee from “blowing the whistle” on their employer will be invalid, there is concern that the wording used may give vulnerable individuals the impression that they are prohibited from doing so. Another concern is that NDAs are seen as a way of brushing bad behaviours and practices under the carpet without thorough investigation, thus potentially allowing the wrongdoing to continue, become “normalised” and expose other employees to similar harm.
From the perspective of the harassment victim, entering into an NDA may lead them to encounter psychological and emotional difficulties, feeling as though the perpetrator has got away with it and not be able to move on.
For these reasons, the Women and Equalities Committee (WESC) has made a compelling case to the government to do something about what is seen as a “cover-up culture”. Employers have a duty to protect the health and safety of employees at work, including protection from unlawful harassment and discrimination. WESC argue that it is in the public interest that employers clamp down on such conduct, thoroughly investing all allegations, instead of covering them up.
However, WESC has stopped short of recommending the outright banning of the use of NDAs. It is recognised that their existence provides an incentive for employers to settle claims rather than putting victims through what could potentially be a long, stressful and traumatic employment tribunal claim. Claims can be expensive to pursue if the individual does not have any funding methods available to them; victims may be concerned about how they would be portrayed, how the publicity could affect their future employment prospects and may also wish to preserve their own privacy surrounding the matter.
What is being done to regulate the use of NDAs and confidentiality clauses in the employment context?
The Solicitors Regulation Authority (SRA) published a warning notice in March 2018 on the use of NDAs, reminding solicitors of their ethical obligations in this regard and warning that disciplinary action could result if certain practices around the use of NDAs are deployed. The Law Society has also issued a best practice guidance note.
Last month the Government announced plans to tackle the misuse of NDAs in the workplace. Under these plans, employers and advisors will need to ensure that individuals understand that the clauses do not restrict the ability to disclose wrongdoing to the police, regulated health and care professionals and legal professional and explain the limitation of the confidentiality clauses within the agreement itself in plain English. There will also be new enforcement measures for non-compliance. These reforms are stated to be aimed at increasing transparency and creating a fairer workplace to boost productivity and earning power for all. Time will tell if they go far enough.
In the meantime, celebrities are also getting involved to help harassment victims with Emma Watson (actress, UN Women’s goodwill ambassador and a Time’s Up UK activist) throwing her support behind a free legal advice line for sexual assault victims launched by the Rights of Women charity this month, to help empower women to understand and exercise their legal rights in the workplace. The helpline number is: 020 7490 0152
Find out more
If you would like more information on employment NDAs, settlement agreements or employment law generally, please contact our employment law specialist solicitor Melanie Rowe on 01872 227006 or by email at email@example.com