UK Proposes to Tighten Rules on Nondisclosure Agreements and Confidentiality Clauses

UK Business Minister Kelly Tolhurst on 4 March announced new legal proposals to tighten the rules on the use of nondisclosure agreements (NDAs) and confidentiality clauses in an employment context, with a view to enhancing protection for workers.

In light of concerns raised in the context of the #MeToo movement, and the reported improper use of NDAs and confidentiality clauses in settlement agreements, a number of recommendations on the use of NDAs and confidentiality clauses have been made recently by the Women and Equalities Select Committee, and the Solicitors Regulation Authority. Read our previous LawFlash on this topic.

Against this backdrop, the UK government is demonstrating continued interest in ensuring NDAs and confidentiality clauses are not used unethically to intimidate whistleblowers or prevent individuals from reporting potential criminal conduct to the police. A consultation has been launched by the UK Department for Business, Energy and Industrial Strategy, with a number of key proposals for legal measures to ensure workers are aware of their rights and to prevent the unethical use of NDAs. A number of issues will be considered, including

• whether there should be more limitations on confidentiality clauses in the employment context, to make it easier for workers and their advisers to understand when they are permitted by law to make a disclosure to the police or other people despite the existence of a confidentiality clause;
• how to ensure workers are clear about the rights they maintain when they sign a confidentiality clause or start work for a new employer. The proposals include a requirement for a clear, written description of individual rights to be provided to a worker before he/she signs up to a confidentiality clause within an employment contract or settlement agreement and the implementation of measures to ensure that workers agreeing to enter into settlement agreements receive independent legal advice. Such advice would cover the nature and scope of any confidentiality clause and the disclosures that an individual would be permitted to make; and
• how to enforce any new regulations on confidentiality clauses. In the case of confidentiality restrictions in employment contracts, the proposals include the extension of the existing right to claim additional compensation where the employer has failed to set out the limits of any confidentiality clause within their written particulars of employment. It is also proposed that a settlement agreement which does not meet any new wording requirements may be rendered void in its entirety.

The business minister emphasized that NDAs and other confidentiality agreements are used by many businesses for legitimate business reasons, such as to protect confidential information and trade secrets, or to keep confidential the terms of an employee’s departure in the interests of both employer and employee. It was acknowledged that there remains an appropriate and important place for them in the employment context when they are used appropriately, but the purpose of these proposals is to tackle the misuse of these agreements.

The Women and Equalities Select Committee has previously recommended that the UK government should legislate to require the use of a standard, approved confidentiality clause which sets out the meaning, effect, and limits of confidentiality clauses when included in both settlement agreements and employment contracts. Although the UK government understands the advantage of ensuring confidentiality clauses and NDAs are clearer about their own limitations, it is concerned that requiring a single form of words in all written employment contracts and settlement agreements could become quickly outdated as other protections develop over time. It has also expressed concern that legislating for specific wording explaining what disclosures are protected under whistleblowing law could affect the way courts interpret the legislative definition of a “protected disclosure” by imposing a more prescriptive meaning than the legislation intends. It is noteworthy that standard wording has not, at this point, been included within the recent set of proposals. However, it is likely that a specific set of requirements on what wording should be included within confidentiality clauses and NDAs will be introduced by the UK government.

UK Prime Minister Theresa May has emphasized the importance of the new proposals, highlighting the clear message that workers should be aware of their rights, and feel able to come forward with concerns. Notwithstanding this, the UK government has made clear that it continues to support the use of NDAs and confidentiality agreements in an employment context when used appropriately.

Employers should consider these proposals carefully, pending the outcome of the consultation. They should ensure that NDAs and confidentiality clauses are not drafted too broadly, so as to prevent employees from reporting potential criminal conduct to relevant authorities. Employers should also take reasonable steps to ensure that an individual fully understands the meaning of any NDA and/or confidentiality clause that he or she signs up to.

The consultation period closes on 29 April 2019. We will continue to report on the newly announced proposals in due course.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Louise Skinner