Impact of #MeToo on settlement agreements – update


Since #MeToo brought non-disclosure agreements (NDAs) into the spotlight, there has been a flurry of activity from government committees and regulatory bodies seeking to implement change. In this article, we look at what this means in the context of confidentiality clauses in settlement agreements and how the desire for change has expanded to more than cases of sexual harassment.

Timeline of government response following #MeToo

July 2018: Women and Equalities Select Committee (WESC) publish a report on workplace sexual harassment and make recommendations on potential new legislation governing the acceptable use of confidentiality clauses.

December 2018: Government responds to WESC report and commits to consult on NDA regulation.

March 2019: BEIS launches a consultation on possible measures to prevent the misuse of confidentiality clauses (NDAs).

June 2019: WESC publishes second report containing recommendations on the use of confidentiality clauses in cases of discrimination and not limited to sexual harassment.

11 July 2019: Government Equality Office launches consultation on sexual harassment in the workplace.

29 July 2019: Government publishes a response to its March 2019 consultation on possible measures to prevent misuse of confidentiality clauses (NDAs).

Indirect effect of #MeToo on settlement agreements

Many of the headlines surrounding NDAs and the various reports, consultations and responses outlined in the timeline above consider their use in respect of sexual harassment. However, NDAs are also used in settling other types of contentious employment matters, such as unfair dismissal and discrimination claims. As employment lawyers, we most often see NDAs featured in settlement agreements, in the form of confidentiality clauses. Some of the concerns expressed about NDAs in cases of sexual misconduct and in the reports above also extend to the use of confidentiality clauses in settlement agreements for other employment-related matters, not only sexual harassment.

The most recent government response on proposals to prevent the misuse of confidentiality clauses was published at the end of last month. The government reiterated in its response that confidentiality clauses are useful in both employment contracts and settlement agreements and condemned their misuse, especially when used to cover up workplace harassment or as an intimidation tactic. As a result, the government has committed to introducing appropriate legislation “when parliamentary time allows”. The proposed legislation would:

  • ensure that settlement agreements cannot prevent someone from making a disclosure to the police, regulated health and care professionals, or legal professionals;
  • require confidentiality clauses in settlement agreements to clearly set out their limitations;
  • ensure that the independent legal advice that an individual must obtain before entering a settlement agreement to ensure the validity of the agreement will include advice on the confidentiality clause itself; and
  • introduce new enforcement measures for confidentiality clauses that do not comply with legal requirements.

As parliamentary time is not likely to free up in the near future, the introduction of the appropriate legislation the government refers to seems a long way off. However, this does not mean that there will not be, and has not been, change. One of the effects of the push for change regarding NDAs is to the drafting of confidentiality clauses in settlement agreements, which the SRA (the body that regulates solicitors) has recently commented on. The SRA has indicated that clauses that now cause concern include those which:

  • permit disclosures only where they are “required” by law (rather than where a party chooses to make a disclosure to an appropriate law enforcement or regulatory body); or
  • seek to impose restrictions on a party’s ability to participate in criminal or other proceedings, or deter them from taking part in those proceedings.

The clearest approach, and the one recommended by the SRA, is for the agreement itself to identify specifically what disclosures are not prohibited by the confidentiality clause. These exceptions will usually include disclosures to a court, regulator or other competent authority.

What does this mean for employers?

Although the change highlighted above is a drafting point and something primarily for lawyers, not employers, to worry about, it is important that employers understand the settlement agreements they sign and what can and cannot be covered in the confidentiality clauses.

Those seeking further regulation in this area are not trying to completely eradicate the use of NDAs. Most appreciate that it is understandable and fair for employers to want to keep the terms of their settlement with an employee confidential. However, times are changing and more care must be taken in drafting confidentiality clauses. Employers should review their settlement agreements to ensure that these changes are reflected.

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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