NDA and Confidentiality Provisions in Severance and Other Agreements – What Should Employers be Doing Now?

The debate continues in the United Kingdom as to how non-disclosure and confidentiality agreements should be regulated to combat their abuse, particularly in cases of harassment and discrimination. In this OnPoint we consider what employers should be doing now in relation to their severance and other documentation in order to reduce the risks of challenges to their agreements, ensure that they accord with best practice, and avoid the risk of criticism of the restrictions they seek to place on employees in settlement situations, especially those involving sensitive issues.

Introduction

The #metoo debate, and in particular the attention which has been paid to the use and abuse of non-disclosure agreements (“NDAs”), has thrown into sharp focus the acceptability, contents and potential regulation of confidentiality provisions in settlement agreements. Whilst there has been some recent litigation demonstrating that the courts will in appropriate circumstances be prepared to enforce NDAs, their use is under continued and critical scrutiny – not least as demonstrated by the “warning notice” issued by the Solicitors Regulation Authority last year reminding solicitors of their professional conduct obligations with regard to the substantive content of NDAs and the various reports of the House of Commons Women and Equalities Select Committee on the issue.

Reform proposals

The UK Government recently published its response to the consultation which it had conducted on proposals to prevent the misuse of NDAs in situations of workplace harassment or discrimination. In this response, the Government acknowledged that NDAs do have a legitimate place in employment agreements when they protect commercially sensitive information, prevent employees sharing information with competitors, and provide a “clean break” for both employer and employee at the end of employment.

However, the Government has confirmed that a package of measures will be introduced in order to seek to prevent NDAs from being used to silence and intimidate victims of harassment and discrimination. These measures will include:

• the introduction of legislation providing that no provision included in an employment contract or settlement agreement can prevent an individual from making a disclosure to the police, regulated health and care professionals or legal professionals.
• the drafting of legislation that will make clear the limitations of NDAs to those signing them.
• the introduction of legislation making clearer the nature of the independent legal advice needing to be taken by an individual when signing a settlement agreement.
• issuing guidance in relation to the drafting requirements for NDAs.
• the introduction of new enforcement measures (including, potentially, financial penalties) in relation to NDAs that do not comply with legal requirements.

Even though it is not yet clear when this package of measures will be put in place, employers who wish to ensure that their agreements accord with best practice, and to avoid the risk of criticism of the restrictions they seek to place on employees, should consider reviewing and revising their documentation now if they have not done so already, rather than waiting for the promised legislation and guidance – although they will need to continue to monitor the situation for further developments.

Settlement agreements

The confidentiality provisions which an NDA usually imposes on the employee in question address issues such as the fact and terms of the agreement and the level of any compensation payment. These confidentiality provisions can also impose confidentiality on any allegations that might have been made of discrimination or harassment – in the course of a grievance, litigation, severance or settlement negotiations or otherwise – either by way of a specific provision or a general prohibition on disclosure or discussion of the circumstances surrounding or leading to the termination of the individual’s employment. Historically NDAs have contained relatively narrow exceptions to these confidentiality obligations, allowing disclosure which would otherwise be in breach of the NDA in limited circumstances, such as for the purposes of taking legal advice or where required by law or by way of whistleblowing.

In light of the ongoing debate about NDAs and the forthcoming reforms described above, the carve outs from confidentiality that employers include in their agreements may need review, refinement and expansion. Whilst the focus of the debate about NDAs to date has been on sexual harassment, given the history of how the issue came to prominence, it is important to remember that concerns about the appropriateness of NDA provisions can equally apply to situations involving allegations of unlawful discrimination on the basis of protected characteristics other than sex.

General review of settlement agreements

When reviewing their settlement agreements in relation to the NDA aspects, employers may also wish to conduct a more general review of their documentation to ensure that it is up to date. Issues which may need attention in addition to the NDA aspects of a settlement agreement may include ensuring that the agreement:

• references all relevant and up-to-date legislation under which claims might be brought by a departing employee to ensure that there is a comprehensive waiver of all statutory claims.
• protects all appropriate persons and entities from claims, including not just the employer but all relevant group companies, employees, directors and shareholders.
• provides for appropriate warranties from a departing employee that the individual has not committed a fundamental breach of contract which would have entitled the employer to dismiss the individual summarily had it been aware of the individual’s conduct and has no offer of alternative employment which would provide mitigation of loss.
• ensuring that the tax treatment of the proposed payments is properly described and that the employer is protected by an appropriate tax indemnity in the case of a challenge to the tax treatment applied.

Other documents

In addition to ensuring that their settlement agreements now fully address the circumstances in which it is appropriate for their confidentiality provisions not to apply, employers should also ensure that other agreements which contain non-disclosure provisions are also reviewed. Depending on their detailed terms, contracts of employment and consultancy agreements can equally include confidentiality provisions to which the approach described above needs to be applied.

Wider issues

Prevention is better than cure and, whilst ensuring that settlement agreements are in appropriate form is of course important, employers should continue to do all they can to ensure that harassment and discrimination issues do not arise, and that, if they do, they are dealt with promptly and appropriately. Ensuring that harassment and discrimination policies are up to date, properly brought to the attention of staff and enforced as well as implementing appropriate and regular training programmes to address diversity and discrimination risks remains crucial.