Non-disclosure agreements: the role they play in resolving disputes

Author: Darren Newman

Darren Newman

Consultant editor Darren Newman argues that any curbing of the abuse of confidentiality clauses needs to be done without detracting from their value in resolving disputes.

The recent furore over the allegations of inappropriate behaviour (strongly denied) against Sir Philip Green has focused attention on the use and abuse of confidentiality or "non-disclosure" provisions in settlement agreements. Should it be possible to buy people's silence?

In March 2018, the Equality and Human Rights Commission published a report - "Turning the tables: ending sexual harassment at work" - which recommended that confidentiality clauses should be included in settlement agreements only at the request of the employee. The Philip Green case has led to renewed calls for something to be done.

This is a difficult issue. If you are an employer seeking to settle a dispute, you are likely to want reassurance that, once the agreed sum has been paid, this will be the end of the matter. Where the dispute is based on allegations by the employee of wrongdoing you may want to make sure that the allegations will not be repeated - and in particular that there will be no suggestion that, in reaching the settlement, you have in any way accepted that the allegations are true.

From the employee's point of view it also makes sense to ensure that the employer will not repeat any allegations that might have formed the basis of a dismissal. The employer may undertake to provide an agreed reference, but in many cases this will not suffice. Agreed references are easy to spot and when the organisation responds to an enquiry by saying that it is not free to add anything, alarm bells will ring for the prospective employer. Instead the parties may agree a "non-disparagement clause" whereby each side undertakes not to say anything disparaging about the other to any third party. The two sides may have to swallow hard before agreeing such a clause - both feeling that disparaging the other is merited. But the essence of a settlement agreement is that it brings a dispute to an end and a non-disparagement clause has the virtue of achieving closure.

An employee cannot be bound to total secrecy. A settlement agreement cannot prevent a worker from making a public interest disclosure (whistleblowing). Neither can it prevent an individual from reporting criminal activity to the police. Most agreements will also make clear that the employee remains free to discuss the matter with legal advisers or close family members.

It is nevertheless an uncomfortable truth that settlement agreements can involve employees selling their silence. This raises ethical questions on both sides. Is the employer buying the right to sweep a problem under the carpet? Is the employee, in accepting a settlement, leaving other employees exposed to the same behaviour that they suffered? Insofar as confidentiality clauses allow unlawful behaviour to continue unchecked, they could certainly be seen as being against the public interest.

There is another public interest matter to consider, however, and that is the public interest in disputes being settled without the need for a tribunal hearing. The alternative to a settlement is litigation and the outcome of a tribunal hearing is uncertain. Harassment claims in particular can be traumatic to pursue all the way to a final hearing and if victims of harassment are prepared to accept a settlement they should not be criticised for this. Placing limitations on the scope of settlements would make them harder to reach - being unable to undertake not to talk about their allegations would mean employees had one less card to play in the negotiations.

This does not mean that there is nothing to be done. Anyone who has read a settlement agreement will be struck by the dense legal wording running over several pages. The provisions relating to non-disclosure may be couched in draconian terms giving the impression that the restrictions placed on the employee are more onerous than they really are.

In July 2018, the House of Commons Women and Equalities Committee published a report on sexual harassment in the workplace that made a number of recommendations about the use of non-disclosure agreements. The report calls for legislation requiring the use of standard, approved confidentiality clauses. The idea is that these would include an explanation in plain English of the meaning, effect and limits of the clause, including a clear explanation of the disclosures that are protected under whistleblowing law and cannot be prohibited or restricted. Further, the report says that the definition of protected disclosures should be widened to make it clear that they include disclosures of sexual harassment to the police and all regulators, including the Equality and Human Rights Commission and Health and Safety Executive, and to any court or tribunal.

A plain English version of a standardised confidentiality clause sounds like a good idea. However, it would probably be best to withhold judgment on it until someone produces a draft - it might turn out to be easier said than done. As for the issue of protected disclosures, it is certainly the case that the whistleblowing provisions of the Employment Rights Act 1996 are fiendishly complicated, and it is too much to expect employees to be confident about what disclosures would or would not come within their scope. However, rather than trying to fix that problem, it might be easier simply to provide that a settlement agreement cannot prevent an employee from disclosing anything to the police or to any regulatory body.

In the final analysis, however, confidentiality clauses are always likely to be a feature of settlements. Measures may be taken to curb their abuse, but we should not lose sight of their importance to both sides. When a case has been settled, the parties need to be confident that the matter is essentially closed and cannot be reopened. Any reform of the use of settlement agreements needs to avoid making it harder for the parties to resolve their dispute.