News in brief – January 2019Shah Qureshi and Natalie Taylor discuss how employers can use non-disclosure agreements to settle workplace disputes while avoiding unethical behaviour. In the wake of the recent sexual harassment allegations which have been exposed through the #MeToo movement, the use of non-disclosure agreements (NDAs) to prevent victims from speaking up has been heavily criticised.
The use of so-called ‘gagging clauses’ has proved controversial and is being debated by the government. There is likely to be a government consultation, with potential changes to the law. Theresa May has said that some employers are using NDAs ‘unethically’ and has pledged to act swiftly following the Women and Equalities Committee’s report on sexual harassment in the workplace.
This raises a few questions which we will address in this article:
- As a result of the recent Harvey Weinstein and Philip Green revelations, as well as the rise of the #MeToo movement, what can employers do to ensure they use NDAs and confidentiality clauses ethically?
- What can employers do if an employee who has signed an NDA does not abide by it?
- What can legal professionals do following the warning notice issued by the Solicitors Regulation Authority (SRA) on 12 March 2018 on how to use NDAs to ensure they are complying with their professional obligations?
- Use of NDAs in the workplace
NDAs are legally binding contracts to prevent people from discussing confidential information and to protect trade secrets. NDAs can be used in a variety of legal situations:
In the corporate context, NDAs are signed between two parties (typically companies) who are discussing a sensitive transaction, such as a possible asset or share sale. The seller wants to ensure that the buyer, who is often a direct competitor, does not misuse any confidential information and trade secrets which are disclosed during the due diligence process, particularly if the sale folds.
In the employment context, NDAs are rarely used as a separate agreement, although confidentiality clauses will most certainly be included in employment contracts and, once an employment relationship terminates, within settlement agreements. Among other things, these clauses can prevent employees from openly discussing harassment, bullying and discrimination.
The government is particularly worried about the use of NDAs to silence victims of workplace sexual harassment. Despite the government’s concerns, settlement agreements with confidentiality clauses can be a useful tool for both parties. The employer will be reassured that it faces no legal action, both protecting its reputation and limiting any financial repercussions from having to defend a claim.
A settlement agreement will also allow the employee to draw a line under the dispute and move on, usually by finding a new job. Employment tribunal decisions are publicly available on the internet, which sometimes concerns both employees and employers.
Having gone through potentially traumatic experiences, employees may be worried about potential repercussions on their personal life, professional life and finances. Employment disputes are, by their very own nature, distressing and upsetting. Many employees see the benefits of accepting a financial settlement which will allow them to start over.
Settlement agreements with confidentiality clauses can therefore be helpful, provided they are used correctly. A blanket ban on any confidentiality clauses may result in employers being less willing to offer settlement agreements. This would leave employees who raise sexual harassment concerns with no option but to bring a formal employment tribunal claim, a potentially costly and time-consuming process which many simply cannot afford.
Preserving the employer’s reputation
When faced with sexual harassment allegations, the main concern for an employer is to protect its reputation, particularly when the alleged perpetrator is a senior member of staff. Depending on the severity of the allegation, the employer is likely to be exposed to public scrutiny, particularly if it has not taken any action against the alleged offender.
This often leaves employers in a precarious situation. On the one hand, they need to take allegations of harassment seriously and act on any concerns or grievances raised by employees. On the other hand, they have an obligation towards the accused employee to conduct a fair and reasonable disciplinary procedure.
This should include a thorough investigation into the allegations followed by a disciplinary hearing where the accused has the opportunity to address the allegations. The employer should then inform the accused employee in writing of any sanctions imposed and give them the right to appeal the decision.
Companies may therefore be exposed to legal challenges by the accused if they take swift and impulsive actions without following a fair and thorough procedure. Employers who face these situations need to manage them carefully and, in most circumstances, seek adequate legal advice. Settlement agreements with confidentiality clauses enable employers to keep the issues ‘in house’ and to investigate the allegations fairly without any public pressure.
There therefore needs to be some degree of confidentiality for settlement agreements so that they protect the employer’s business interests. However, it is also important to prevent the unethical use by employers of overly restrictive gagging clauses.
Protecting employees’ right to speak up
Most settlement agreements will allow employees some scope to discuss the dispute with their immediate family and legal advisers. Employers should not act unreasonably if the employee also wants to confide in other people, provided the suggested amendments do not render the agreement ineffective.
For example, allowing an employee to speak to a therapist without the fear of being sued should not affect the company, given that therapists are bound by their own professional duty of confidentiality.
In the UK, it is obligatory for an employee to obtain independent legal advice before signing a settlement agreement. The adviser must thoroughly explain the legal clauses in the agreement, including any confidentiality clauses, to the employee.
The signed professional adviser’s certificate guarantees that this conversation has taken place and a settlement agreement is not legally enforceable without it. The UK therefore has protection – in the form of the employee’s solicitor – which other jurisdictions may not have. As such, there is a responsibility on the legal adviser to adhere to the general principle of integrity when advising clients who may have been harassed or discriminated against.
They need to make the purpose and effect of any confidentiality clauses clear and satisfy themselves that the client fully understands the implications of accepting the settlement agreement, including the confidentiality clauses, before signing.
Settlement agreements will usually include a long list of claims which the employee is prohibited from making or discussing in the public domain. However, some claims are expressly excluded and solicitors advising employees should make them aware of these.
For example, a settlement agreement cannot prevent an employee from bringing a whistleblowing claim. An employee therefore remains entitled to make a protected disclosure in the public interest – for example, if they believe a criminal offence has occurred (or is likely to occur) or there is a danger (or likely to be a danger) to an individual’s health and safety.
While the confidentiality clauses in the settlement agreement may prevent employees from contacting the press, they are still able to raise issues covered by the Public Interest Disclosure Act 1998.
There should therefore be a provision in the settlement agreement allowing employees to raise matters of a criminal or regulatory nature with the appropriate body (such as the police). Indeed, regulated professionals, including solicitors, bankers and doctors, may be under a professional obligation to raise matters with their regulator (such as the SRA, Financial Conduct Authority or General Medical Council).
Solicitors advising employees on the terms of the settlement agreement should emphasise that the correct process to raise criminal or regulatory allegations such as sexual harassment is with the appropriate body.
What if an employee ignores the NDA?
In recent cases, some employees have decided to breach their confidentiality obligations and have publicly spoken about their sexual harassment experiences. What can companies do about this?
The reputational damage to the company has already been done. While, strictly speaking, the former employer has a contractual claim against the employee, it should consider this carefully from a PR perspective.
Any legal action against the employee would be in the public domain and would be likely to tarnish the company’s reputation further. Companies will need to consider all the elements (including the cost and managerial time involved in litigation and the uncertain outcome) when deciding whether to take any formal action.
It is likely that a harsh approach and the threat of legal action against the employee will attract negative press and portray the company as unethical. Moreover, to bring a successful claim for breach of contract, the company will have to demonstrate that it suffered a loss because of the breach.
Practically, this can be difficult to prove. While sale numbers may decline because of the bad press received, the company will have to link this to the fact that the employee broke the gagging clause. Although it may be possible to prove this, it will be very fact dependent.
Instead of considering what legal actions are available, employers can try to limit any reputational damage by actively investigating the matter, ideally as soon as the allegations have been raised.
This may include conducting a disciplinary investigation and disciplinary meeting with the alleged perpetrator. If the employer reasonably believes that the allegations are true, it may be entitled to impose sanctions on the perpetrator, possibly resulting in dismissal.
Employers can also use the situation as an opportunity to update any internal procedures and policies, such as those on bullying and harassment, and remind employees that they are obliged to adhere to these policies. This will limit the reputational damage if an employee goes public.
What next?
Time will tell what the government’s findings will be following formal consultation on the use of NDAs. The SRA is investigating the solicitor firm which drafted the NDA for Harvey Weinstein’s company, which was intended to silence Weinstein’s former personal assistant, Zelda Perkins. Along with its warning notice, this shows that the SRA is taking the ethical use of NDAs seriously.
In the meantime, employees who are signing NDAs following sexual harassment or assault should be encouraged to raise any concerns with the appropriate body such as the police to avoid being caught in any unwanted litigation with their former employer.
They should also receive legal advice on their employment rights and their employer’s duty of care towards them. In addition, both in-house and external lawyers should be aware of the issues when advising businesses and take note of the SRA’s warning notice to avoid any potential reputational damage.
