Non-disclosure agreements (NDAs) came under intense scrutiny following the global #MeToo movement and high-profile allegations of sexual harassment and assault. In England and Wales, they have recently been the subject of extensive research into their potential misuse.
The Legal Services Board (LSB), the oversight regulator of legal services in England and Wales, has published a summary report of its research into the misuse of NDAs, concluding that there are certain common abuses, particularly during employment disputes.
Indeed, NDAs, which are legally binding contracts between one or more parties who agree not to disclose confidential information they have shared with each other, are most typically contained within employment contracts and settlement agreements.
One of the areas the LSB identified as being problematic is the legal profession and general public’s lack of understanding as to how NDAs should be used.
According to the LSB’s research, NDAs are used inappropriately for both:
- Legal but unethical acts, such as bullying; and
- Illegal acts, including unlawful harassment and discrimination (eg, on the grounds of sex, race, disability and maternity), sexual harassment, and sexual assault.
The LSB discovered that many NDAs are related to employment disputes and the regulator received questions over whether these types of agreements “should ever be used to conceal misconduct, prevent a victim of wrongdoing from seeking support or reporting to regulatory or law enforcement bodies”.
Of course, as the LSB highlighted in its summary of the research, certain disclosures are protected under existing laws. As such, “awareness of existing legal protections may not be widespread”.
In terms of the general public, the LSB expressed concern that individuals who are subject to NDAs are not aware of, for example, the context in which a non-disclosure clause in an agreement would be void if it sought to preclude certain reports.
Legal professionals, meanwhile, are sometimes presenting NDAs in settlement agreements “as standard” and lacking sensitivity when advising an individual in a vulnerable situation.
The LSB’s research also revealed that a ‘typical’ potential misuse of an NDA usually involves an imbalance of power “between a party with more influence and resources and an individual made vulnerable by their circumstances”.
Most frequently, this dynamic was that of employer and employee (ranging from junior roles to senior leadership roles), when the employee depended on the employer for financial compensation or a reference after experiencing issues at work.
According to the LSB’s summary, it’s unclear whether victims of misconduct or other wrongdoing are unable to receive a settlement without signing an NDA, and employers have no incentive to enter into such agreements without one.
The LSB intends to conduct further analysis of the existing regulatory and legislative framework over the 2024/2025 business year. In particular, and where appropriate, it will consider regulatory levers that may be used to increase public understanding of existing laws and/or address conduct in the provision of legal services that may lead to the misuse of NDAs.
Poor advice reflects badly on NDAs
We advise on settlement agreements regularly and, in our experience, confidentiality clauses aren’t usually something that causes concern to individuals. Most individuals understand that one of the reasons why employers settle matters can be reputation management.
In your everyday settlement, which is usually to facilitate an agreed exit or settle potential litigation, confidentiality clauses also have advantages for individuals.
Often, it’s agreed that confidentiality and non-derogatory comments clauses are mutual. This means that an employer is also restricted from disclosing that litigation was ever threatened, a matter was settled, and how that settlement was reached. As a result, an employee won’t be restricted or damaged reputationally by any previous issues, as they try to move forward.
Poorly drafted and over-enforced NDAs are unhelpful and silencing. In particular, using NDAs to silence victims of discrimination is unhelpful and cannot, ultimately, cause growth or accountability if an employer is able to repeatedly solve their issues through silence.
However, the reality is that confidentiality clauses cannot restrict employees’ ability to whistleblow or report criminal activities. They also cannot stop an employee working with the police or other regulators, where relevant.
Any ‘over enforcement’ is actually caused by poorly advised employees, who don’t know their rights, or overzealous or overly aggressive employers who are also poorly advised.
NDAs and the question of inclusivity
At their core, NDAs are designed to safeguard information. This inherent purpose, whilst practical in a business context, can morph into a tool that silences employees, stifling their voices against injustices, harassment, or discrimination they may encounter.
Such use of NDAs directly contradicts the ethos of equality, diversity, and inclusion (ED&I), making them a hypocritical element within progressive corporate cultures.
The application of NDAs can inadvertently create an environment where misconduct goes unchallenged, and the stories of those affected remain untold. This outcome is contrary to building inclusive spaces where every individual is valued and heard.
For workplaces committed to ED&I, the challenge lies in balancing the need for confidentiality with the imperative to foster a culture that does not hide or ignore systemic issues.
How then can we navigate the complex terrain where NDAs and inclusivity intersect? The answer may lie in a nuanced approach to the use of these agreements.
Transparency and boundaries: Clearly outlining the scope of NDAs to focus solely on proprietary information and trade secrets, excluding personal experiences related to workplace culture or misconduct.
Support systems: Build robust internal mechanisms that encourage speaking out. Anonymous reporting channels, mental health support, and clear anti-retaliation policies can create a safety net for those who wish to voice concerns.
Ethical use guidelines: Develop guidelines that outline the ethical use of NDAs, making it clear that these documents should not be used to silence employees from reporting illegal activities or discriminatory practices.
In an era where inclusivity is not just a buzzword but a pillar of thriving workplaces, the role of NDAs deserves scrutiny. While they serve a vital purpose in protecting business interests, they must not become barriers to the very principles of equality and openness that progressive companies champion. By reimagining the use of NDAs through an inclusivity lens, businesses can protect their assets and their employees.
We can offer independent and confidential advice on settlement agreements and NDAs in an employment contact, for both employers and employees. Get in touch via enquiries@thrivelaw.co.uk if you need support or have any questions.
Disclaimer
Please note this blog is for reference purposes only and is only accurate at which the date it was published. It does not constitute legal advice and should not be relied upon as such. Specific Legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any actions. Please contact us if you have any questions on enquiries@thrivelaw.co.uk.
This blog was prepared with assistance from Generative AI.
