LawFlash

UK Women and Equalities Committee Calls for Immediate Government Action to Prevent Misuse of NDAs

July 10, 2019

Following the launch of an enquiry in November 2018 examining the use of nondisclosure agreements (NDAs) where allegations of harassment or discrimination have been made by an employee, the UK Parliament’s Women and Equalities Committee (Committee) published its report on 11 June. It builds upon the Committee’s July 2018 report on sexual harassment in the workplace, which raised concerns that the unethical use of NDAs where sexual harassment was alleged was deterring victims from raising complaints due to fear of reprisal.

The report follows a number of efforts by various governmental and nongovernmental bodies to address sexual harassment in the workplace, and focuses in particular on the use of NDAs to “silence” victims and encourage a “cover-up culture.” The UK Solicitors Regulation Authority published a warning notice in March 2018 advising that NDAs and “gagging clauses” by which an employee is prevented from reporting misconduct and/or making a protected disclosure under the Public Interest Disclosure Act 1998 should be treated as unenforceable. Similarly, in response to the Committee’s report of July 2018, the UK government has pledged to introduce a code of practice designed to address sexual harassment in the workplace. The government’s consultation on the use of NDAs closed on 29 April and identified the following potential areas for amendment of the law:

  • Clarifying in law that a confidentiality clause cannot prevent an individual from reporting a crime and/or making a protected disclosure, and making it easier for workers and their advisers to understand their rights in this respect.
  • Requiring a clear, written description of individual rights to be provided to a worker before he/she signs 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 an individual would be permitted to make.
  • Providing guidance on how to enforce any new regulations on new and existing confidentiality clauses. In the case of confidentiality restrictions in employment contracts, the proposals include the extension of the right to claim additional compensation where exceptions to the confidentiality clause have not been set by an employer in employment particulars. It also considers whether any settlement agreement that fails to comply with any new wording requirements should be rendered void.

Committee Findings

The Committee’s report sets out the context behind its concerns and its recommendations for change in respect of the use of NDAs. The report reiterates that discrimination in the workplace is unlawful under the Equality Act 2010 and that employers are under a duty of care to provide a safe working environment for all employees. However, the Committee’s research suggests that the power imbalance between employer and employee often leads to a “cover-up culture” and suggests that employers are routinely and unethically drafting NDAs to avoid initiating proper investigation processes. It states that even where employers purport to have in place the necessary policies and procedures to investigate grievances, there is often a disconnect between the statements made and how the employer has actually responded. The Committee is concerned that employees, often feeling isolated, succumb to the pressure of entering into a settlement agreement as a means to avoid a lengthy grievance process without fully considering the consequences of doing so. The Committee believes that the personal impact that the process of entering into an NDA has on victims is often overlooked, and cites evidence of the emotional and psychological trauma suffered, with many victims remaining silent or settling in fear of being blacklisted or having their careers curtailed as a result. Similarly, the report states that a substantial number of victims have faced difficulties in progressing in their careers, are struck by an intense fear of the repercussions and consequences of breaching the agreement, and often find the language used in the NDA to be legalistic, opaque, and difficult to understand. In fact, the Committee suggests that the misuse of NDAs by employers is only one element of a wider failure of the current legislative, regulatory, and judicial mechanisms to protect employees from discrimination and abuse of power. 

Committee Recommendations

The Committee’s findings must, however, be balanced with the view shared by most legal commentators that there is a place for NDAs within the employment context when used for legitimate business reasons, such as to protect confidential information and trade secrets or keep confidential the terms of an employee’s departure in the interests of all affected parties. The use of NDAs in the settlement of employment disputes is by no means uncommon and is often an efficient and appropriate mechanism for protecting the legal rights of both employer and employee. The Committee recognises this, stating that its proposed package of recommendations is designed to address the systemic misuse of NDAs to mask unlawful discrimination in the workplace, not to stop their use altogether.

The Committee’s key recommendations include the following:

  • Calling on the government to ensure that the use of NDAs cannot in itself prevent discussion of allegations of unlawful discrimination and/or harassment, while concurrently protecting the rights of complainants to put the events behind them should they so wish.
  • Reaffirming the need for confidentiality and non-derogatory clauses in settlement agreements to be drafted in clear terms, detailing the specificities of what information can and cannot be shared and with whom.
  • Requesting that the government take action to strengthen corporate governance requirements to ensure that employers are held accountable with regard to their responsibilities to protect employees from harassment and discrimination in the workplace.
  • Requiring named senior managers at the board level (or equivalent) to oversee anti-discrimination and anti-harassment policies and procedures and the use of NDAs in discrimination and harassment cases.

Among the Committee’s proposed recommendations is a renewal of previous calls on the government to create a mandatory duty on employers to protect employees from harassment and victimisation in the workplace. On a more urgent basis, it requests the immediate improvement of remedies currently at the disposal of employment tribunals for discrimination cases, including a power to award punitive damages where appropriate and an increase in awards for injury to feelings. Separately, it proposes improvements to the employment costs regime, which in its current form the Committee believes disincentivises victims from pursuing a case.

What Does This Mean for the Post–#MeToo Employer?

While it is clear that the Committee’s latest recommendations are designed to discourage systemic misuse of NDAs in harassment and discrimination cases, the report provides only limited practical guidance for employers. We expect that the government’s response will set out with more specificity what will be required of employers in this respect going forward. In the meantime, employers should ensure that confidentiality provisions in employment particulars and settlement agreements are drafted in a clear and concise manner with appropriate carve-outs, including clarifying that confidentiality clauses cannot prevent individuals reporting a crime to the police/regulator and/or making a protected disclosure under the Public Interest Disclosure Act 1998. Employers should take steps to ensure robust policies and procedures are in place to encourage all allegations of sexual harassment and inappropriate behaviour to be appropriately reported and investigated, with consideration given to all parties involved.

From a practical perspective, and in order to mitigate risk, it may be prudent for employers to consider and record the reasons as to why a confidentiality agreement is deemed appropriate in the circumstances, including recording the possible effect of the agreement on the employee. Additionally, employers should consider monitoring and recording the use of confidentiality agreements in the settlement of claims to ensure any problematic patterns are addressed as early and efficiently as possible.

We will continue to provide updates on any new 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
Matthew Howse
Lee Harding
Louise Skinner
Pulina Whitaker