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Farrer & Co | Non-disclosure agreements and confidentiality clauses – where are we now?

Significant scrutiny has been placed on the use of non-disclosure agreements (NDAs) or confidentiality clauses in settlement agreements by the media and regulators in the wake of the Weinstein saga – something we have highlighted in previous blogs, for example here and here.

On 11 June 2019, the Women and Equalities Committee (the Committee) published its report on the use of NDAs in discrimination cases. The full report can be found here. This report follows a 2018 report by the Committee on sexual harassment in the workplace and the Government’s response to that. The most recent report is critical of the Government in its failure to accept some of the Committee’s previous recommendations and puts forward a combination of old and new recommendations to the Government in order to address the potential problems with NDAs.

The opening statement of the summary sets the tone for the position taken throughout the report, stating that “it is completely unacceptable that allegations of unlawful discrimination and harassment in the workplace are routinely covered up by employers with legally drafted NDAs”. Further, the report states that the signing of NDAs in many cases is not “benign” and, perhaps most troublingly, that NDAs have a detrimental effect, both emotionally and financially, on the “lives of ordinary people”.

The main recommendations of the report concern the following areas:

1. The content and effect of NDAs

The Committee is not, as some parts of the press would have us believe, calling for a total ban on NDAs.

Instead, the main recommendation is that the Government should “legislate to ensure that NDAs cannot be used to prevent legitimate discussion of allegationsof unlawful discrimination or harassment… while still protecting the rights of victims to be able to make the choice to move on with their lives”. The report appears to recognise that whilst a total ban would remove the “cover-up culture” of which it is so critical, NDAs do also provide an incentive for employers to better engage with settlement, in that “employers would be less willing to settle, or to settle early, without them”.

The report has therefore placed the burden on the Government to decide how best to balance these conflicting points, the Committee was however unequivocal that the Government must act “now” to achieve this balance.  

In doing so, it calls upon the Government to legislate, within the next two years, to ensure that any clause in a settlement agreement that has the effect of controlling what information an individual can share with others should:

  • be clear and specific about what information cannot be shared and with whom
  • contain agreements about acceptable forms of wording that the signatory can use, for example in job interviews or to respond to queries by colleagues, family and friends, and
  • contain clear, plain English explanations of the effect of clauses and their limits, for example in relation to whistleblowing.

2. Corporate governance and board level reporting

The Committee was “convinced of the need” for boards of both private and public companies to take greater responsibility in supervising their organisation’s use of NDAs when settling harassment and discrimination cases. It urged the Government to:

  • strengthen corporate governance requirements to require employers to meet their responsibilities to protect those they employ from discrimination and harassment, and
  • require named senior managers at board level or similar to oversee anti-discrimination and harassment policies and procedures and the use of NDAs in discrimination and harassment cases.

3. Tribunal claims

The Committee renewed its recommendations for the Government to:

  • extend the time limits to six months (as opposed to the current limit of 3 months) in cases where sexual harassment, or pregnancy or maternity discrimination is alleged. They also recommended a wider review of the time limits in all cases concerning discrimination
  • “urgently” improve the remedies that are available. In particular, tribunals should be able to award punitive damages, and awards for the non-financial impact of discrimination (such as any injury to feelings or psychiatric injury) should be increased significantly, and
  • improve the costs regime to reduce the disincentives for individuals to bring claims. A method that was recommended by the Committee was the introduction of a “one-way costs shifting”, this essentially creates a presumption that an employer should pay an employee’s costs if the employee’s case is upheld. The principle behind this is that an increased risk on employers is likely to promote the settlement of meritorious cases.

4. Whistleblowing legislation

Due to the considerable complexity surrounding whistleblowing law and the “public-interest test” in workplace discrimination cases, the Committee recommended that the Government should review the current legislation in order to clarify and simplify its position.

5. Introducing a criminal and/or professional disciplinary offence

The Committee repeated its 2018 recommendations that:

  • the Government should 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
  • the use of provisions in confidentiality agreements that can reasonably be regarded as potentially unenforceable should amount to a professional disciplinary offence for lawyers advising on such agreements.

Conclusions to be drawn

We will await the Government’s response both to this report and to the consultation on its proposals on NDAs (which closed on 29 April 2019). However, with Brexit dominating politics, a new prime minister imminent and the Government’s previous reluctance to accept the Committee’s recommendations, it is easy to imagine that this won’t be terribly forthcoming or ground-breaking in its contents. 

In the meantime, the legal position on NDAs remains the same and the evidence is that confidentiality obligations on settlement of employment disputes remains commonplace. However, the recent negative publicity means that there is a growing groundswell of disapproval of NDAs and it is possible that change may be forced from below rather than legislated from above. Employers may start to see employees (and their solicitors) becoming more hesitant, or possibly even resistant, to agreeing to an NDA clause without the inclusion of the carve-outs suggested by the Committee.

With thanks to Jessica Boyce for helping to prepare this piece.

If you require further information about anything covered in this blog, please contact Amy Wren, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2019

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