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May 01 2019
By Sam Murray-Hinde

Sam is a Partner in the Employment Team at legal firm Howard Kennedy. More details are here


NDAs: The good, the bad and the ugly

Confidentiality clauses offer advantages for employers and employees. But what are their limitations?

Since the #MeToo campaign gathered steam 18 months ago, non-disclosure agreements – or, more accurately, confidentiality clauses – have gone from being an uncontroversial aspect of settling employment claims to a cause celebre. 

Cover ups can be even more damaging for businesses

Politicians and activists alike have called for them to be strictly regulated or even banned.   But when should you use them – and what do you need to be wary of?

The exceptions

Even with the public outcry, it is still very unusual for any employment settlement agreement not to include a confidentiality provision.

Typically, a confidentiality clause restates the employee's contractual confidentiality obligations and also requires the employee and employer to keep the details of the dispute and settlement terms confidential and not to make critical remarks about the other party.

The clause will normally set out some common-sense exceptions; for example, the employee can tell their immediate family and professional advisers about the settlement terms (providing they in turn keep it confidential) and the employer can disclose details to their HR team, payroll provider and advisers. 

There will also be exceptions for any information which either party is legally required to disclose to someone else (e.g. a regulator) and any information they are required to disclose to HMRC.

Clause limitations

So far, so straightforward. But where employers can trip up is trying to go further than the law allows. It's important to be aware of the legal limits on confidentiality clauses. 

First, they cannot prevent individuals making protected disclosures (i.e. blowing the whistle) so long as the individual meets the requirements in the whistleblowing legislation. 

Second, they should not be used to prevent individuals reporting matters to the police or co-operating with any police investigation – and any lawyer who drafted a clause which tried to do so would potentially be committing professional misconduct. 

Although they offer advantages for both parties, confidentiality clauses have their limitations. 

Settlement agreements often state that any breach of the agreement (including the confidentiality terms) will require repayment of the settlement payment, but such terms are not always enforceable – and even if they are enforceable in theory, in practice the costs and difficulty of tracing an ex-employee may make it unattractive to do so.

Tackle the root

It's also important to consider the wider business context. 

Although settlement agreements with confidentiality clauses are an effective way of resolving disputes without litigation, and go some way toward protecting the business' reputation, they are not a cure-all. 

If complaints are repeatedly made against an individual, the wisest course is to tackle the root of the problem rather than relying on settlement agreements to hush things up. 

The lesson of #MeToo is that workplace misbehaviour often ends up in the public domain and attempts to cover it up can be even more damaging for the business.  



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