Confidentiality clauses in settlement agreements: Government consultation

On 4 March 2019 the Government commenced consultation on an employer’s reliance upon non-disclosure agreements or confidentiality agreements.

On 4 March 2019 the Government commenced consultation on what has in recent times become an increasingly contentious area of employment law; an employer’s reliance upon non-disclosure agreements (NDAs) or confidentiality agreements. The intention of the consultation is to seek evidence and views upon the use of NDAs in the employment context and to propose further legislation to tackle misuse.

The Government acknowledges that, in their broader context, NDAs have a legitimate purpose in protecting the employer’s genuine business interests, for example to preserve trade secrets. The Government also acknowledges the need for parties to have a clean break following a dispute and that the appropriate use of NDAs facilitates this.

There are also already in force additional measures of protection, for example the limit on the employer’s ability to prevent the making of protected disclosures. Nevertheless, there is said to be evidence of increasingly inappropriate use of NDAs and the Government seeks to legislate to further protect the individual.

Scope

The scope of the consultation is, in summary:

  1. To seek evidence of bad practice, for example the use of provisions that exclude or restrict the individual’s right to make protected disclosures or those which over-state the proper limits of an NDA.
  2.  Making non-compliant NDAs in settlement agreements void in their entirety.
  3. Requiring NDAs to provide clarification to specify the disclosures that they do not seek to prohibit, for example the making of a protected disclosure or the reporting of a matter to the police.
  4. Preserving the unrestricted ability of the individual to report any matter to the police, whether or not it has been made the subject of a NDA.
  5. Extending the requirement, in order for a settlement agreement to be valid, for individuals to take independent legal advice to cover specifically the full meaning and effect of any NDAs contained within it.
  6. Extending the provisions of the Part I of the Employment Rights Act 1996 to require the inclusion of NDAs in the written statement of particulars of employment from the commencement of employment. Also extending the enforcement provisions in this respect, providing a right for employees to make a claim for compensation of up to four weeks’ pay for a failure to meet this requirement.

It should be noted that although much of the publicity in this area has related to the use of NDAs in the context of harassment and other forms of discrimination, the proposals cover the use of NDAs in relation to all matters arising from the workplace.

Measures that are not in scope

It is of note that the consultation does not propose to ban in their entirety NDAs and the Government has rejected a proposal that the unethical or inappropriate use of NDAs should be made a criminal offence.

Summary

The scope of the consultation has been criticised by some as being inadequate, but under the proposals employers will be forced to carefully review their approach to the imposition of NDAs, both in employment contacts and settlement agreements.

The implementation of legislation would also raise the profile of the issue and it is thought that those who fail to meet any new requirements will, in addition to being unable to enforce restrictions, face the consequences of reputational damage should they be seen to inappropriately ‘gag’ their staff. However, it is important to remember that the measures set out in the consultation document are only proposals at this stage and it remains to be seen which elements will eventually become law and in what form.

For individuals, the proposals seek to achieve not only greater protection but a broader understanding of the use of NDAs, meaning that it is less likely that they might be intimidated into agreeing to inappropriate restrictions.

The consultation closes on 29 April 2019. Full details of the consultation can be found here.

Mark Foster (mark.foster@weightmans.com) is an Associate in the Employment, Pensions and Immigration team based in Birmingham. If you have any concerns or questions about this consultation or the use of NDAs or confidentiality, please contact Mark or speak to your usual Weightmans advisor.

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