NDAs – the story continues

A recent report by The Women and Equalities Committee (WESC) has criticised the use of non-disclosure agreements (NDAs) to protect those accused of discrimination and harassment, and has recommended measures aimed at discouraging the use of NDAs to cover up such allegations.

When I last wrote about NDAs, the President’s Club scandal had just hit, the Weinstein revelations had cast a long shadow over the film industry, and members of the public were made aware of the use of NDAs by some employer to ‘hush’ departing employees. Subsequently, the Prime Minister suggested that rules surrounding NDAs might need to be reviewed.

As more first-hand stories have come before the WESC, such as the case of the new mother who was apparently forced to sign an NDA upon being made redundant or risk missing out on a financial reward, it has been reported that NDAs are being abused by some employers.

However, media reporting on the misuse of NDAs can offer a skewed perspective by focusing on the most extreme examples. In our experience of acting for both employers and senior executives, most settlement agreements are an effective tool which allow the resolution of disputes between an employer and employee, and NDAs are at the heart of such agreements.

The WESC report focused on the use of NDAs within settlement agreements and makes certain recommendations aimed at protecting victims of harassment and discrimination, including:

  • encouraging employers to settle disputes without using NDAs;
  • stopping NDAs from being used to prevent legitimate discussion of allegations of unlawful discrimination or harassment, whilst still protecting the right of victims to be able to move on;
  • clarifying employee’s rights by ensuring clear drafting of confidentiality and non-derogatory comments clauses;
  • strengthening corporate governance requirements to ensure that employers properly protect employees from discrimination and harassment; and
  • requiring named senior managers to be responsible for overseeing anti-discrimination and harassment policies.

The latter recommendations – clarifying rights, strengthening governance requirements, and increasing the responsibility of senior management – all seem sensible suggestions, aimed at improving transparency and encouraging employers to deal with allegations properly rather than jumping straight to settlement.

However, the report’s suggestion that NDAs should be removed from settlement agreements so that departing employees are free to discuss what happened to them is likely to be more problematic. Some employees prefer to have a reciprocal NDA clause that ensures the confidentiality of the employee as well as the employer.

Whilst the report does mention that some public sector employers are already settling disputes without using NDAs, for most employers a provision that neither party will discuss the matter nor speak negatively about the other is a vital aspect of a settlement agreement. Without an NDA, employers would have less incentive to make any settlement offer.

The report recognises that in many instances the levels of compensation paid out to employees under a settlement agreement are greater than or equal to what the employees might obtain if they had brought a claim. The employee gets this compensation (up to £30,000 of which can be paid tax free if it does not relate to notice pay) without having to go through the stress, expense and reputational risk of taking the employer and any specific alleged perpetrator to court/tribunal.

In recognising that many victims prefer to accept a settlement agreement than bring a claim, the report states that the victim’s right to move on should be protected. However, the report is not specific as to how the protection of that right is to be achieved, whilst simultaneously preventing the use of NDAs to prevent the discussion of allegations.

Of course, we must not ignore the small minority of employers who are pressuring victims of proven harassment into signing these agreements. Further, some victims may not want to be hushed and may prefer to hold the employer and its relevant employees to account.

Under existing law, NDAs in settlement agreements do not prevent a victim from reporting relevant matters to the police or a regulator. Further, an NDA in a settlement agreement will not be legally binding unless the employee has received independent legal advice. So, the reality is that every employee has a choice of whether or not to sign an NDA; the practical issue is that some employees appear not to be aware of this choice.

One way to provide further clarity, as proposed by the report, is using clear, plain-English wording in an NDA which sets out when and with whom the employee can discuss the information in question. At Joelson, we already include wording in our NDAs making it clear that the agreement does not prevent the employee from reporting a crime, whistleblowing or reporting matters to a regulator.

Other proposals by WESC include doubling the current three-month time limitation on bringing sexual harassment claims in the tribunal, improving the individual’s ability to recover their costs if successful at tribunal and increasing the amount of compensation payable. Such measures, if implemented, might reduce pressure on employees to sign potentially unfavourable settlement agreements by giving them more time to consider their options, and by reducing the financial costs and raising the potential rewards associated with bringing an employment claim.

Whilst steps do need to be taken to prevent employers from misusing NDAs, the reality is that some employees genuinely stand to benefit from NDAs in settlement agreements, provided they get the right advice from specialist employment lawyers. Legislators must remember this fact and resist caving in to pressure from the more salacious sections of the media which paint an ugly – and often untrue – picture of how most employers use NDAs.

David Greenhalgh

David Greenhalgh

Partner – Employment

+44 (0) 20 7580 5721

david@joelsonlaw.com

This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.