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New Government Consultation on Confidentiality Clauses

Following the report on Sexual Harassment in the Workplace by the House of Commons Women and Equalities Commission which we discussed in our Insight of last July, the Department for Business, Energy and Industrial Strategy has published a consultation on measures to prevent misuse of confidentiality clauses in situations of workplace harassment or discrimination. The consultation runs until the end of April and invites comments from interested parties on a number of proposals.

Current use of Confidentiality Clauses

Confidentiality clauses, sometimes known as Non-Disclosure Agreements or NDAs, are used in a number of different ways in the employment context. In contracts of employment, they are often used to ensure trade and business secrets are not revealed, both during the course of and after the termination of the employment relationship. Confidentiality clauses are also often included in settlement agreements whereby individuals agree to give up their rights to make claims against their employer (or former employer) in exchange for a sum of money. Such clauses may include prohibitions on discussing the circumstances surrounding the termination and the content of the settlement agreement, as well as non-disparagement clauses to prevent the parties from making derogatory comments about each other.

There are already limits to what NDAs can do. For example, clauses on confidentiality cannot prevent an individual from making a protected disclosure under whistleblowing legislation.

Criticism of Confidentiality Clauses

The Women and Equalities Commission highlighted in their report that while the above are legitimate uses of confidentiality clauses, there have been reports of these being used in unethical ways to try to prevent current and former employees from speaking about harassment and abuse and to deter reporting of such misconduct. Concern has also been expressed that repeated use of agreements containing confidentiality provisions can help cover up courses of conduct by specific individuals.

In response to the criticism, the government is consulting on some proposed changes to the law to better regulate use of confidentiality clauses in an employment context while at the same time protecting the legitimate purposes they serve in the context of protecting business interests and in facilitating bringing conflicts between parties to a resolution and incentivising employers to enter into agreements with their employees where conflicts exist.

Proposals and Consultation

In brief, the proposals put forward are:

  • Introducing legislation to make clear that no confidentiality clause can prevent someone from making a disclosure to the police. The consultation also invites comments on whether other people or organisations should be included (the consultation paper mentions doctors and therapists specifically).
  • Introducing requirements that all confidentiality clauses in both settlement agreements and contracts of employment must specifically highlight what kind of disclosures are not prohibited by the clause. In relation to settlement agreements, this would include a requirement that the individual must be specifically advised on the extent of the confidentiality obligations for the obligation to be valid. The government has said they are not in proposing a standard form of words as they believe this is too prescriptive, but have asked for views on this issue.
  • Clauses in settlement agreements that do not highlight the limits of their extent will be void in their entirety to incentivise employers to ensure confidentiality clauses are drafted correctly. In terms of contracts of employment, it is proposed that failure to provide details of the limits of the confidentiality clause would be dealt with in the same way as any other failure to provide required information to employees, i.e. through the enforcement mechanism for the right to a written statement of employment particulars.

At the moment, the proposals are only at consultation stage. However, with an increased focus in the last few years on workplace sexual harassment and the way such incidents are often covered up, it is likely that at least some of these changes will be implemented. As an example of how these issues are already being taken seriously in some industries, in England, the Solicitor’s Regulation Authority has already issued a notice warning solicitors that non-disclosure agreements must not be used improperly, for example as a means to deter someone from reporting wrongdoing to the relevant authorities. If and when the proposals in the consultation are legislated upon, employers will want to ensure that any confidentiality clauses are drafted carefully to ensure they are enforceable. The expectation of confidentiality going forward is often one of the main incentives for employers when deciding to enter into settlement agreements, and if these guarantees are eroded they may be less likely to wish to consider settlements.

If you have any queries about confidentiality clauses, NDAs, or any of the other issues raised above please do not hesitate to contact a member of the Stronachs Employment Team.

 

Annika Neukirch, Solicitor

Chambers Leading Firm 2019

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