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Laura Clark

Knights

Senior Associate - Employment

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Why there is a place for employers to use NDAs  

The government’s rejection of a ban on non-disclosure agreements (NDAs) in harassment cases was the right decision, say employment lawyers Laura Clark and Nick Hawkins at Knights. Now the focus needs to be on how they are used appropriately in the workplace.
silhouette of person standing on rock surrounded by body of water: Why there is a place for employers to use NDAs

Topics for a non-disclosure agreement (NDS) can be wide-ranging, from sensitive commercial information to dispute settlement. This legally binding agreement seeks to prevent the parties privy to it from sharing specified information with third parties.  

It is accepted that there is a place for NDAs in certain circumstances. However, using so-called ‘gagging clauses’ in harassment and bullying cases is especially controversial. There is a nervousness that they are used by companies to prevent victims from sharing their experiences. Also removing an incentive for firms to take action to prevent harassment.

There is a place for NDAs in certain circumstances

Sexism in the City

Particular concerns have arisen regarding their use in the financial services sector. In March 2024, the Treasury Committee published its report Sexism in the City. It (among other things) recommended the banning of NDAs in harassment cases. Considering that the wide use of NDAs in the financial services sector has “the effect of silencing the victim of harassment and forcing them out of an organisation, while protecting perpetrators and leaving them free to continue their careers and go on to abuse others.”

The government recently responded to the committee’s recommendations. It did not commit to the implementation of a blanket ban of NDAs in harassment cases.

Based on experience with employer and individual clients alike, this is the right decision. Indeed, as the government pointed out in its response, in the employment context, there are legal restrictions to how an NDA can be used. An NDA cannot be used to prevent an employee from whistleblowing. Or from reporting a crime to the police, and terms seeking this will be unenforceable. Guidance from the Equality and Human Rights Commission (EHRC) and by Acas also makes this clear. An employer entering into an agreement would be well-advised of this.

Blowing the whistle

Additionally, in order to be a valid settlement of a claim, an employee needs to take advice from a relevant independent advisor on the ‘terms and effect’ of the agreement. This means that an employee can enter into the agreement with full awareness of its legal limitations. And therefore their ongoing ability to report a crime/blow the whistle. 

The attendees to the committee’s enquiry were concerned that NDAs were being used to “protect firms from reputational damage and make problems ‘go away’”. However, when settling a dispute, it is understandable that an employer would want certainty that the matter has been resolved as far as possible. This would include reputational management. That does not preclude an employer from taking steps to prevent harassment.

An NDA cannot be used to prevent an employee from whistleblowing

Understand the carve-outs

As long as the appropriate carve-outs are in place and understood, it is unclear why an employee would need to go wider than the relevant authority to ensure that the employer takes action to prevent harassment from happening again.

Indeed, it would also be open to an employee to seek a term in the settlement agreement requiring the employer to take specific action. Further, from October there will be a positive duty on employers to take reasonable steps to prevent sexual harassment in the workplace. Employers that fail to do so will be subject to a 25% uplift in compensation in the event of a successful claim. This should provide an additional incentive on employers to take action to stop sexual harassment.

Bad reputation

NDAs understandably have a bad reputation (the Harvey Weinstein matter most notably). There will inevitably be examples where they have been used improperly. But an outright ban would not necessarily assist in promoting a workplace free of discrimination and harassment. Indeed, it is very often the victims in discrimination and harassment cases who are as keen on maintaining confidentiality as much as the employer.

By allowing the use of NDAs, it affords individuals the opportunity to enter into a contract with their employer. Under this they can agree compensation in return for their confidence (very often alongside a waiver of claims as well). Thereby drawing a line under the matter. For individuals, this is very often the preferred outcome.

NDAs understandably have a bad reputation

A better focus

Rather than banning the use of NDAs in harassment cases, a better focus would be to ensure that when NDAs are used, they are done so properly and with the appropriate protections in place.

For employers to really drive the change that the report so clearly begs, they should ensure that they exercise discretion in the use of NDAs. As well as ensuring they are properly drafted and utilised, and avoiding giving the impression that they are all-encompassing.

Did you enjoy this article? Read: Upcoming employment law changes: Your need-to-know guide

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Laura Clark

Senior Associate - Employment

Read more from Laura Clark