Confidentiality clauses and non-disclosure agreements- consultation on proposals for reform

Recently there has been a lot of media attention given to attempts by employers to prevent their staff or former staff from disclosing details of allegations of wrongdoings, in particular relating to sex discrimination and sexual harassment. Typically, the allegations have centred on high profile celebrities or business owners, and the use of agreements with the alleged victims that have included gagging clauses.

Naturally, salacious stories always make good press, so alleged incidents of sexual harassment have figured highly in the reporting and public discussions on this topic. Sadly, the angle that the press and media adopt in relation to the reporting and discussion about confidentiality clauses can have the effect of distorting the issues in the mind of the public. It is therefore important to clearly identify the “mischief” in question, as confidentiality agreements can and are used in a number of situations, to protect a whole range of different types of information (not just allegations of harassment or discrimination).

Looking at the mischief in discussion it is helpful that the Government consultation document is described as being a “consultation on measures to prevent misuse in situations of workplace harassment or discrimination.”

In the Executive summary in the consultation document it is made clear that the purpose of the consultation is to propose further regulation to tackle the “misuse” of confidentiality agreements. The summary states that:-

“Confidentiality clauses have a right and proper place in the employment context.”

There are two main uses of confidentiality clauses, firstly they may be found in a contract of employment – for example to protect the employers trade secrets, and secondly as part of a settlement agreement- to resolve an employment dispute and move on with a clean break. Both these uses are legitimate. The first provides security to the employer’s business, and the second gives certainty and a conclusion to litigation, allowing for an agreement that will enable both sides to move on.

The Executive summary in the consultation document then highlights the actual area that can cause problems:-

“However, there is evidence that…… some employers have used confidentiality clauses to suggest victims of harassment cannot make any disclosures and intimidate them into silence when they have faced harassment or discrimination.”   

The Executive summary explains the current limitations on the use of confidentiality clauses, but goes on to state that the consultation seeks views on what further limitations might be put on confidentiality clauses to ensure that they cannot be misused or to clarify what they can and cannot cover.

Although the consultation paper sets out a number of questions it does make clear that the Government- “proposes to make it clearer to workers that they still maintain some disclosure rights even when they sign a confidentiality clause.”   

The consultation document acknowledges that confidentiality clauses in contracts of employment (ie at the start of the employment) and those in settlement agreements or other agreements concluding or settling claims have different purposes, and require different analysis.

In the main, most individuals do not scrutinise confidentiality clauses found in their contract of employment in particular detail. Most individuals are far more concerned that the contract reflects the agreement over the rate of pay, hours of work, job title, and benefits being provided (such as any car or car allowance, pension provision, etc). In addition, the purposes and aims of employers in using confidentiality clauses in contracts of employment is usually to protect their trade and business secrets, protect intellectual property, the employer’s financial information, and the details of its customers and clients. Although those topics remain important throughout the period of employment, and after the employment has terminated, they do not cover the same range of issues relevant to protecting the reputation of the business and settling potential court or Employment Tribunal claims. The consultation paper considers introducing a requirement to include any confidentiality requirements in the main contract of employment. The Government is considering introducing a requirement on employers to be clear on the limits of any confidentiality clause included within the main contract of employment, and that this should apply to all employees. In addition, they are considering introducing a power to increase any compensation awarded in an Employment Tribunal case if this additional explanation on the confidentiality clauses had not been included when they received their written particulars of employment. The consultation paper argues that this approach “has the advantage of simplicity.”       

As many people already know, confidentiality clauses can be found in settlement agreements reached to resolve employment or workplace disputes. For a settlement agreement to be valid, the worker must first receive independent legal advice on the terms and effect of the agreement from a suitably qualified person (usually a solicitor or trade union representative that is certified for this purpose). The consultation document indicates that the Government is proposing to extend the requirement to ensure that the worker receives advice specifically on any confidentiality clauses or provisions within the agreement, and the limitations of any such clauses or provisions. This is not really a major radical move, as we take the view that any solicitor giving advice on a settlement agreement should include advice on the effect of any confidentiality clauses anyway (and we are certainly sure that their professional indemnity insurer would agree with this too!). The practical problems in this area will arise over how such obligations are defined, and how prescriptive they become. It is distinctly likely that any regulations on this topic will lead to satellite litigation, and potentially expensive arguments about definitions and compliance. There is a risk that those arguments and issues will make the chances of reaching terms of settlement between employers and workers more difficult to achieve than is already the case.

There is an element of having to bite one’s lip involved in reaching acceptable terms of settlement in most disputes and litigation, and if the hopes of the employer for certainties over confidentiality cannot be met, then that uncertainty will often be reflected with a reduced financial offer within the terms of settlement. All settlement agreements involve a certain amount of compromise of positions by both the employer and worker, and the terms over confidentiality should always be seen in that context. After all, this sort of agreement used to be known as a “compromise agreement.” This name simply reflected the reality of the situation in the majority of cases. 

The consultation paper ends with a list of ten questions for consideration. The closing date for responses to the paper is the 29^th April 2019.      

If you need any further advice on any matter raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.