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Should NDAs be Banned from the Workplace?

The question of whether it is ever acceptable for individuals to be “bought off” and “paid for their silence” has, understandably, come under the microscope in the recent years. Particularly where confidentiality clauses, or non-disclosure agreements (“NDAs”), have been used to prevent employees from reporting allegations of sexual harassment or similar misconduct such as in the Weinstein case where NDAs were used to hide a lengthy, repetitive course of sexual misconduct.

What are NDAs?

An NDA is a legal contract between parties which seeks to protect and prevent the disclosure of confidential information, and is commonly known as a confidentiality clause. The agreement itself could be:

  • Contained within an employment contract;
  • Included within an Acas settlement;
  • In a separate, standalone document; or
  • Within a settlement agreement.

Examples of reasons why an employer and a worker might agree to enter into an NDA:

  • To protect company secrets
  • To keep details confidential after a dispute

When is it inappropriate to use an NDA?

However, an NDA cannot stop an individual from blowing the whistle, co-operating with a criminal investigation or reporting a crime to the police. These exceptions should be spelt out in the relevant agreement and made clear to the worker. Other examples of when an NDA should not be used include:

  • Before seeing if another solution can be used in the alternative;
  • To hide a pattern of behaviour, potentially endangering others;
  • To stop someone reporting discrimination, harassment or sexual harassment and victimisation;
  • To cover up inappropriate behaviour or misconduct;
  • To avoid addressing disputes or issues in the workplace;
  • To prohibit someone from discussing complaints of discrimination, harassment or victimisation with those who could provide professional support and to the worker’s close relative(s);
  • To mislead someone.

NDAs in the present day

More recently, the discussion has turned to whether a law should be introduced that would prohibit employers from using NDAs to silence victims of sexual harassment. It’s nearly been four years since the #MeToo movement, which highlighted the prevalence of sexual harassment in the workplace and the large sums of money used by employers to conceal such wrongdoing through settlements negotiated by NDAs. However, since the movement the way in which NDAs are regulated has changed. The Solicitors Regulations Authority issued a warning notice on the use of NDAs on 12 March 2018 with a further update issued in November 2020 which stated that while NDAs may be legitimate in certain circumstances, they must not prevent (or appear to prevent) anyone from blowing the whistle under the relevant legislation or from making any report of misconduct to or cooperating with a regulator or law enforcement agency.

Workers should not be asked to give a warranty that they are not aware of any act or omission which would be a protected disclosure or a criminal offence as this could potentially have the same silencing effect as an NDA and it is unlawful to stop a worker disclosing or reporting a criminal offence.  Individuals must also not be precluded from talking to medical or other professionals who are bound by obligations of confidentiality and close family.  Penalty clauses must also not be used which are disproportionate to the damage caused by the breach anticipated.

Stark warnings were issued by the SRA to solicitors who should not use confidentiality clause as standard but instead should use them “as required”.  Solicitors should be asking whether there is a clear need for the clause, what the benefit is for the employer and what the impact will be on the employee.  Finally, the solicitor should prompt the employer to consider the impact of the clause on the culture of their organisation.  Where it is used, the clause should also be worded to deal with the particular circumstances and go no further than reasonably necessary and appropriate.

In November 2018, the Women and Equalities Select Committee launched an inquiry into the use of NDAs in cases where any form of harassment or other discrimination is alleged. The inquiry resulted in a report being produced which highlighted key points and called  on the Government to take action. The Government then launched a separate consultation in the same year on the topic, as result of which significant changes were proposed, but the timescale for introducing such changes remains unclear and there does not appear to be any particular urgency on the part of the Government.

As a result of this delay, the push for introducing a law prohibiting the use of NDAs has grown, with the reasoning being that individuals are continuing to sign and agree to NDAs when they do not understand the severity of the situation and the power disparity that is involved. NDAs, where used improperly, can promote and drive an undesirable workplace culture, where poor management purchase the silence of employees who have experienced significant wrongdoing. It is undoubtedly right to explore ways to prevent the abuse of NDAs, but a fair balance needs to be achieved between public policy and the parties freedom to enter into a contract.

Banning NDAs altogether will not automatically foster a more inclusive and a discrimination and/or harassment free workplace. By banning their use entirely in employment agreements, there runs the risk that workers may be deprived of the opportunity to agree compensation with their employer where they will want assurances that the matter will not be openly discussed again, and instead, workers may feel compelled to pursue the employer through litigation at a considerable financial and emotional expense.

What can be done to promote the proper use of NDAs?

  • Improve access to legal advice for employees. Workers entering into a settlement agreement with a confidentiality clause need to be made fully aware of its legal status, and that they are not prevented from making a protected disclosure under whistleblowing legislation, as well as the impact of signing to the agreement.
  • Fostering inclusive workplaces. Alongside workplace polices, employers should promote and encourage a supportive and inclusive culture, with senior leaders and line managers championing these behaviours in order to lead by example. Moreover, specifically training and encouraging leaders to call out inappropriate behaviour, encouraging others to follow suit.  Turning a blind eye or hoping someone else will call it out should not be an option.
  • Provide more robust guidance to employers. More robust guidance on the appropriate and ethical use of NDAs could be included in the Acas guidance on settlement agreements, by the EHRC and/or the Government.
  • Employers must keep central records in order to keep track of discrimination complaint and their own use of NDAs. The SRA guidance made it clear that settling the claim may not be the end of the matter.  Employers should still investigate to ascertain what has happened.  A claim may place the employer on notice of the existence of unlawful discrimination.  Employers should take reasonable steps to address any discrimination identified and prevent it happening again.  Employers should consider whether there are systematic issues giving rise to such complaints and what measures may be required to tackle discrimination.  They must ensure that NDAs are not being misused.

If you have any queries arising from this alert, or if you require specific legal advice in relation to NDAs, please contact Associate Naomi Latham or Partner Emma Bartlett, both of whom specialise in employment and partnership issues for multinational employers, senior executives, partnerships and partners.

Read our Little Book of Employment Law here.

CM Murray LLP is ranked in Band 1/Tier 1 by Chambers and Partners and Legal 500 for Employment (Senior Executives), ‘“they’re top-notch lawyers and are very knowledgeable, dedicated and reliable. The team is particularly business-minded and operates with an international mindset, meaning that they are very comfortable with cross-border issues.” (Chambers and Partners UK 2021).