Can NDAs/confidentiality clauses survive in the #MeToo era?



"Unethical","intimidate victims into silence", "protecting the powerful" are some of the recent views that have been expressed on the use of non-disclosure agreements (NDAs) by employers. The spotlight was, primarily, thrust onto the use of NDAs/confidentiality clauses when reports first emerged of employees allegedly being forced to enter into them by Harvey Weinstein and subsequently Sir Philip Green. In the wake of these allegations there were calls for action to be taken to prevent employers using NDAs/confidentiality clauses to conceal allegations of wrongdoing. In response, we have seen the UK government pledging to end the "unethical use" of NDAs, the Solicitors Regulation Authority issuing a Warning Notice about their use and, most recently, the Law Society publishing guidance on the use of NDAs/confidentiality provisions as part of any settlement to end workplace relationships.

NDAs/confidentiality clauses: what is the difference?

The widespread interchangeable use by the media of the terms NDA and confidentiality clauses in relation to harassment cases has caused some confusion. NDAs are, typically, used entirely legitimately by businesses to protect commercially confidential information or trade secrets and to prevent this information being shared inappropriately. These agreements are commonplace across most industries and serve as an essential and legitimate means for protecting commercially sensitive information.

Confidentiality clauses, in relation to settling workplace claims and specifically harassment claims, are usually found in settlement agreements. These clauses tend to include terms which are commonly referred to as NDAs as they are, typically, used to avoid reputational damage by preventing employees from disclosing information regarded as confidential, even if not in the category of trade secrets. For example, a confidentiality clause in a settlement agreement will often set out what an employee can and cannot talk about in relation to his or her employment and the circumstances that led to the parties entering into the settlement agreement. Essentially, the settlement agreement itself is not an NDA as such, but the confidentiality clauses it contains may have a similar effect.

Settlement agreements

Despite the negativity currently surrounding NDAs/confidentiality clauses, it is important to remember that settlement agreements are still an essential and legitimate tool for avoiding litigation and settling disputes.

In most workplace disputes, allegations will be made against one or both parties in some shape or form. However, the rights and wrongs of these allegations will never be determined under a settlement agreement. It is, therefore, unsurprising that reputational matters are a key consideration in most settlement negotiations. When an employer is faced with particularly damaging allegations, it will naturally want these to remain confidential as a condition of any settlement.

The alleged actions of a few employers, who are accused of having engaged in serious wrongdoing and then forced employees into accepting confidentiality obligations as part of a settlement, have, unfortunately, tainted all employment settlement agreements and their respective confidentiality clauses.

Enforceability of NDAs/confidentiality clauses

According to one report, NDAs/confidentiality clauses are "being used to intimidate victims into silence". Contrary to how matters have recently been reported, NDAs/confidentiality clauses do not prevent all disclosure by an employee or former employee.

Any NDA/confidentiality clause that seeks to prohibit an employee from legally "blowing the whistle" and making a protected disclosure or a complaint to a regulator or law enforcement agency will be unenforceable.

In order to benefit from the protection of the whistleblowing legislation, the employee must reasonably believe that the information he or she is disclosing shows at least one of six categories of specified wrongdoing and that the disclosure of that information is in the public interest. The categories of wrongdoing are:

  • commission of a criminal offence;
  • breach of a legal obligation;
  • miscarriage of justice;
  • danger to health and safety;
  • damage to the environment; and
  • deliberate attempt to conceal any of the above wrongdoing.

Turning specifically to allegations of harassment, could an employee or former employee, who has entered into a settlement agreement containing confidentiality clauses restricting his or her ability to disclose information relating to the circumstances of the settlement, make a protected disclosure in respect of allegations of harassment? In brief, the answer is yes. Harassment could potentially fall within the majority of the six categories of wrongdoing. The harassment may constitute a breach of the Equality Act 2010 which prohibits sexual and other harassment, and this would therefore be a breach of a legal obligation. Depending on the nature of the harassment, it could be a criminal offence if, for example, the harassment amounted to an assault. Equally, if there is an existing culture in the workplace of tolerating harassment, there may be a danger to the health and safety of other employees by also exposing them to the harassment.

In addition, the protection under the whistleblowing legislation is also subject to the disclosure being made to the following categories of people only:

  • the employer;
  • the person responsible for the relevant failure or wrongdoing;
  • legal advisers;
  • Government Ministers;
  • a person prescribed by an order made by the Secretary of State – this includes HM Revenue and Customs, the Audit Commission, NHS England, the FCA and the Office of Communications (Ofcom); or
  • a person who is not covered in the above list, provided certain rigorous conditions are met. This could include a non-prescribed regulator, MPs, the police and perhaps even the media. However, to qualify for the protection the employee must make the disclosure in accordance with a number of stringent conditions.

Concerns about the use of NDAs/confidentiality clauses

Why then, if employees can still legally make disclosures of information which the settlement agreement sought to keep confidential, are NDAs/confidentiality clauses being so widely criticised?

The reality is that most employees who have entered into a settlement agreement will not blow the whistle on a former employer. The most likely reason for this is that they will simply be unaware that they can without breaching the terms of their settlement agreements. It is also likely that, without legal advice, an employee would be unsure about how to make a protected disclosure relating to the wrongdoing of a former employer. It is not hard to imagine an employee who had entered into a settlement agreement being extremely wary of jeopardising any compensation received as part of the settlement. The employee is likely to be equally as fearful of exposure to any liability to the employer for loss suffered as a result of the disclosure of the information.

In addition, in light of the recent reported inappropriate use of NDAs/confidentiality clauses, there appears to be a strong belief that perpetrators of wrongdoing are able to simply pay their way out of extremely damaging situations. It would seem that it is this view that has generated the most criticism of the use of NDAs/confidentiality clauses.

The future of NDAs/confidentiality clauses: what's next?

All of the signs seem to suggest that the use of NDAs/confidentiality clauses is going to be subject to greater regulation. However, at this stage there is no indication that they should be completely abolished. Neither the SRA Warning Notice , nor the recent guidance issued by the Law Society prohibit the use of NDAs/confidentiality clauses, rather both documents clearly explain how far these clauses can legitimately go.

The Law Society guidance explicitly sets outs the disclosures which cannot be restricted by a NDA/confidentiality clause. These include:

  • making a protected disclosure or blowing the whistle;
  • reporting misconduct, or a serious breach of regulatory requirements, to a regulator;
  • reporting an offence to the police or other law enforcement agency and/or co-operating with a criminal investigation; and
  • reporting, in the public interest, any serious wrongdoing to a law enforcement agency, relevant regulator or equivalent person which has a proper interest in receiving that information.

The other key takeaway point from the Law Society guidance is that any NDA/confidentiality clauses must be easily understood by all parties. The Law Society advises that they should be drafted in clear and simple English and that it is good practice to give anyone signing an NDA/confidentiality clause time to consider the implications of agreeing to the restriction, including giving them sufficient time and opportunity to obtain independent legal advice.

It is clear that the recent scrutiny of the use of NDAs/confidentiality clauses can be attributed to recent high profile cases where serious wrongdoing has allegedly been committed by an employer who is believed to have used the NDA/confidentiality clause as a way of covering up such wrongdoing and preventing it from becoming public knowledge. The new guidance on NDAs/confidentiality clauses makes clear that they should not be used to silence victims inappropriately or allow individuals to hide allegations that they have committed serious wrongdoing.

Settlement agreements and their associated NDAs/confidentiality clauses are an invaluable tool for resolving disputes in the workplace, both from an employer's and an employee's perspective. Even in the post #Me Too era it is hard to envisage circumstances where the use of NDAs/confidentiality clauses will be completely abolished. At times, the reputational protection that they offer is just as valuable as the funds that would be spent defending a course of litigation. However, what is obvious is that, if they are to survive, they must be drafted and used in a legal and appropriate manner.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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