Is there a case to be made for banning workplace non-disclosure agreements?

An ‘NDA’ is an acronym for ‘non-disclosure agreement’, which is a confidentiality agreement between two or more parties.

A workplace NDA is a colloquialism for confidentiality clauses within a workplace settlement agreement, a contract between (generally) an employer and an employee under which the employee agrees not pursue claims against their current or former employer in return for some form of financial and/or non-financial benefit. There are two broad types of settlement agreement – firstly, a statutory settlement agreement and, secondly, an ACAS COT3 agreement.

These confidentiality clauses will, in general, compel the parties to the settlement agreement to maintain confidentiality in relation to the facts of any dispute, the terms of the settlement agreement, the existence of the settlement agreement, and the circumstances and/or negotiations leading up to the settlement agreement. In most circumstances, these confidentiality clauses will not be controversial and, commonly, they are of benefit to both employers and employees. In some circumstances, however, this is not the case.

Why the focus on workplace NDAs?

The ‘Me Too’ social movement and awareness campaign, which gained renewed political traction in 2015 and 2017, with new allegations made against the disgraced media mogul Harvey Weinstein relating to sexual impropriety in the workplace, placed a focus on the use of workplace NDAs. It was reported and, subsequently, established that Weinstein had made a practice of compelling his accusers to enter into NDAs, and criticism was made of the use of these NDAs to cover up immoral and/or illegal acts on Weinstein’s part.

In the United Kingdom, in 2017, Zelda Perkins, a former assistant of Harvey Weinstein based in London, made public the fact that she had been sexually harassed by Weinstein and that she had subsequently signed a settlement agreement containing an NDA. She criticised the use of workplace NDAs, arguing that Weinstein’s behaviour should have been exposed rather than covered up and, further, that the use of NDAs exacerbated the trauma suffered by victims of workplace abuse. More recently it was reported that, Crispin Odey, the beleaguered hedge fund manager, had allegedly used NDAs to ensure that alleged sexual harassment at his hedge fund was brushed under the carpet.

The campaign by Perkins and others to restrict or further regulate the use of NDAs in the workplace has also caught the attention of parliament, with the Women and Equalities Select Committee investigating the use of workplace NDAs in the music business and Conservative MP Maria Miller attempting to introduce a private members’ bill to outlaw the use of NDAs in sexual harassment cases (although this was not subsequently passed into legislation).

In 2018, the Solicitors Regulation Authority (SRA) recognised that there may have been improper use of NDAs and distributed a ‘warning notice’ to solicitors, effectively warning that they must comply with the SRA Principles when advising on settlement agreements.

The benefits of workplace NDAs

There are clear benefits to the use of workplace NDAs, including (but not limited to): confidentiality; finality; that the parties will have been provided with independent legal advice on the agreement; and that such agreements limit the strain on public resources by settling cases.

Confidentiality

There are obvious benefits to employers in preventing employees from disclosing, whether internally to colleagues or externally to the general public, the fact and content of their dispute with their employer. Preventing such disclosure can limit reputational damage, prevent external scrutiny of misconduct in the workplace, and restrict useful information from being passed to the colleagues of victims of misconduct.

Confidentiality clauses can also be of assistance to employees. It is not uncommon for employees to want to ensure that the circumstances of their dispute with their employer are kept confidential, even in circumstances where the employee has been the victim of serious inappropriate (or even criminal) behaviour in the workplace. How one employee wants to deal with an incident of sexual harassment may, of course, differ quite significantly to how another employee wants to handle it, and quite often employees in more ‘vanilla’ circumstances may want to prevent disclosure of allegations of underperformance or misconduct to prospective employers.

Finality

Well-drafted confidentiality clauses will prevent future disputes relating to what can and cannot be disclosed once the settlement agreement is signed, which means that there is finality and clarity for both parties as to what can and cannot be said.

Legal advice

If an employee has been offered a statutory settlement agreement, then they will, almost always, be offered a sum of money to pay for the legal fees of a lawyer who will review their agreement and advise them on it; this is also sometimes, but not always, the case with COT3 agreements.

Limiting the use of public resources

Clarity and finality in the drafting of confidentiality clauses prevents the courts from having to adjudicate disputes between the parties if there are alleged breaches of such clauses, as it should normally be clear on the facts whether there has or has not been an actionable breach.

‘Safety valve’ for improper or illegal conduct

A significant point, which seems to be continually missed by the campaigns of Miller and Perkins, is that employers cannot by law prevent employees who have signed workplace NDAs from making protected disclosures’ – this is governed by Section 43j of the Employment Rights Act 1996.

Protected disclosures are disclosures of information which show, or tend to show, that the following has been, is being, or is likely to be committed: a criminal offence, a failure to comply with a legal obligation, a miscarriage of justice, the endangering of the health or safety of any individual, or the damaging of the environment (or the covering up of any of these).

Perkins would, presumably, or at the very least should have been, informed when she signed her workplace NDA that the signing of such could not preclude her from making a criminal complaint regarding Weinstein’s behaviour.

The drawbacks of workplace NDAs

There are, of course, significant potential disadvantages in using workplace NDAs, including: that they may allow employers to ‘cover up’ improper behaviour through the use of confidentiality clauses; that the imposition of such agreements is generally undertaken through the prism of the imbalance of power between an employer and an employee; that sometimes the employee is, or perceives that they are being, coerced into entering into such an agreement; and that once the agreement is signed it is incredibly difficult to then ‘reverse’ out of it.

Confidentiality

Although confidentiality can be an advantage of an NDA, it can also be a disadvantage. It can serve to cover up improper behaviour, behaviour that could influence the decisions of third parties who deal with the employer (such as customers, contractors, suppliers, and the like), and may cause the employer to ignore problems in the workplace rather than to try and solve them. As detailed above, however, conduct which meets the test of Section 43j of the Employment Rights Act 1996 cannot be ‘silenced’ under the terms of a settlement agreement, and the person subject to a settlement agreement would be able to disclose such behaviour to a relevant third party (such as the police, their MP, or a regulator, depending on the circumstances).

Power imbalance

Given the power imbalance between employers and employees, it may not always be possible to secure terms of settlement which amount to a rational and fair package. An employee may not want to annoy their employer by negotiating, or they may not have a balanced and informed view of the circumstances of the dispute. Equally, employers generally have good access to expert and clear legal advice at an early stage, something that an employee may not be able to rely on. This may mean that the employee is unable to quickly gain access to all the information they may need, whether factual or legal, which would allow them to properly negotiate terms.

Coercion

As detailed in the paragraph above, an employee may feel coerced by their employer into accepting a settlement agreement. Equally, employers sometimes try and bully employees into accepting NDAs by threatening to dismiss them and/or reduce any settlement offered, should the employee not promptly accept the terms that they are offering.

Finality

Finality, as outlined above, is generally a good thing, but can also serve to ‘hamstring’ an employee by preventing them from taking any further legal action should they enter into a settlement agreement, even should the employee subsequently change their mind as to whether they wish to settle their claims. Once a settlement agreement is signed it is very difficult to vary it or set it aside, save with the employer’s permission (which, predictably, is not generally forthcoming).

Should workplace NDAs be banned?

Settlement agreements serve an important private and public function: they allow for the settlement of private disputes and, thereby, reduce the potential strain on public resources. Their use in general is, therefore, to be recommended.

The case for the continued use of workplace NDAs is much more balanced: the use of such NDAs is, generally, an integral part of why an employer will want to enter into a settlement agreement. They will not only want to resolve the litigation, but they will also want to prevent a (former) employee from damaging their business by making derogatory comments about them or disclosing the circumstances of the dispute. Equally, there are important public policy reasons as to why workplace NDAs should not prevent employees from disclosing particular types of misconduct in the workplace (such as criminal offences, regulatory breaches, and the like).

On balance, our view is that Section 43j of the Employment Rights Act 1996 provides sufficient room for parties who have entered into settlement agreements to disclose particular types of misconduct, without allowing for a coach and horses to be driven through the purpose of the NDA. There are ongoing, and important, debates as to whether (in effect) the ambit of Section 43j should be extended to allow other types of misconduct to be disclosed, notwithstanding the presence of an NDA, but for now the balance is a reasonable one.

Chris Hadrill is a partner in the employment team at Redmans.