NDAs: Are they legal?

The use of confidentiality clauses or “NDAs” to settle employment disputes is coming under increasing scrutiny in the media and from Parliament. New recommendations indicate that the law will soon be clamping down on this issue.

A non-disclosure clause restricts or “gags” what the parties can say about a matter, and they may also prevent derogatory comments being made or published about specific people or organisations.

In June 2019, the Women and Equalities Select Committee (WESC) published its report on the use of confidentiality clauses/NDAs in settlement agreements. The WESC has expressed concerns that employers are using these agreements improperly in order to cover up allegations of bullying or harassment, without properly investigating the claims first.

The current position is that NDAs cannot be used improperly to prevent an employee from reporting unlawful conduct to the police or to regulators; employees will always have the right to “blow the whistle”. Financial compensation under these agreements should therefore not be offered by employers as “hush money” in order to avoid reputational damage resulting from employee allegations about bullying or harassment, including sexual harassment.

However, settlement agreements containing confidentiality clauses have a legitimate role in settling employment disputes and there is currently nothing preventing employers from offering them to employees, provided that:

  • The employee is not unduly pressured or bullied into signing the agreement;

  • The employee has the opportunity to take independent legal advice before signing; and

  • The agreement makes it clear that employees are still permitted to make a “protected disclosure” (i.e. blow the whistle or report unlawful practices) and are not gagged from doing so.

The WESC report made the following recommendations to the Government:

  •  Confidentiality and non-derogatory clauses in NDAs should be drafted using clear and understandable language, and be specific about what information can and cannot be shared and with whom;

  • The Government should strengthen corporate governance requirements to ensure employers meet their responsibilities to protect their employees from discrimination and harassment (rather than routinely resorting to NDAs to “hush up” such claims); and

  • Senior managers at board level (or the equivalent) should be required to oversee anti-discrimination and harassment policies and procedures and the use of NDAs in their organisations.

Businesses should be aware that the law may soon be changing in this respect, so they should be proactive in dealing with issues of workplace bullying and harassment, in order to avoid having to resort to an NDA to settle a dispute.