26 October 2018 | Firm news

The use of non-disclosure agreements in the employment context continues to hit headlines

As another high profile figure comes to light for allegedly using non-disclosure agreements (NDAs) to prevent staff from revealing details of sexual harassment, racist abuse and bullying, we look at the legal issues involved in using these types of documents.

NDAs can have a perfectly legitimate place in business when used appropriately; companies will often need to ensure that confidential information such as sensitive financial data is kept under wraps and away from competitors’ prying eyes. Similarly, there is a place for such agreements when looking to protect trade secrets.

However, in employment law, employers commonly rely on a form of NDA when drafting settlement agreements. This is typically the case with a termination of employment, where both parties agree to keep information about the employment and its termination secret. In exchange for this secrecy, which can often be accompanied by obligations not to make disparaging comments about the other party, an employer will usually pay a suitable settlement sum to the employee. It is this use of settlement agreements that is receiving public criticism.

It is important that employers are aware of the limits of what NDAs can achieve by way of confidentiality. Legally, NDAs cannot be used to try and gag employees from making protected disclosures to relevant regulatory bodies or to the police if a crime has been committed.

The Solicitors Regulation Authority (SRA) has been concerned about the possibility that employers within the legal profession could be seeking to use settlement sums to cover up potential sexual misconduct which should otherwise have been reported. In an attempt to prevent this, the SRA has issued a warning notice for law firms detailing what it considers to be the unlawful use of settlement agreements.  This includes where an employer may seek to use an NDA as a means of improperly threatening litigation against an individual or otherwise seeking improperly to deter them from making a legitimate disclosure.

The Equality and Human Rights Commission has also recently written a report condemning agreements that bar individuals from speaking out about sexual harassment or victimisation and calling for new laws to void such contracts.

On the other hand, settlement agreements enable employers to avoid the expense of having to defend false allegations through courts and tribunals. Including an NDA provision can be seen simply as a mechanism for legitimately avoiding the matter being played out in the court of public opinion.

The debate about the use and/or abuse of NDAs particularly in the context of sexual misconduct cases continues to rumble on and we are unlikely to have heard the last on this subject.

Hugh James can assist with all aspects of queries on the legality of employers using or enforcing non-disclosure agreement. Please get in contact with a member of the employment team on 029 2267 5610.

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