NDAs – an update following publication of the EHRC guidance
The Equality and Human Rights Commission (EHRC) has published new guidance “The use of confidentiality agreements in discrimination cases” two years after #MeToo was launched. The EHRC wants to call time on NDAs used to cover up discrimination, victimisation and harassment. Whilst the government is intending to tackle the inappropriate use of NDAs through legislation “when Parliamentary time allows,” no timescale has been set, no reference to the legislation was made in the recent Queen’s Speech and a general election is now looming. In the meantime, the EHRC guidance does not have the status of a statutory code, but it can still be used as evidence in legal proceedings. It is therefore important for employers to take the recommendations on board. The aim is to help employers understand when and how confidentiality agreements (also referred to as non-disclosure agreements (NDAs) or “gagging clauses”) can be used legitimately. It also suggests employers take legal advice on whether an NDA should be used and if so, whether it is worded appropriately. Solicitors – both in private practice and in-house – must follow guidance from the SRA on the use of NDAs.
Terms and conditions of employment
The EHRC guidance states that where confidentiality clauses are included in employment contracts, employers should ensure that the wording does not prevent workers from making a discrimination claim in the future and that there is no pressure to sign the agreement. Workers should be given time to consider the agreement, seek advice if they wish and be given a copy.
Settlement agreements on termination
NDAs are typically included in settlement agreements – which is where most of the controversy has arisen. The guidance sets out circumstances in which an NDA is likely to be appropriate e.g. where the worker wants it. It also sets out the following good practice points:
- If an employer uses a template settlement agreement, confidentiality clauses should only be used on an as required basis and not included as standard;
- Factors for employers to consider in deciding whether to include a confidentiality clause include:
- Is there a clear reason why it is needed?
- What is the benefit to the employer?
- What is the impact on the worker of including it?
- What is the impact on the culture of the organisation?
- What are the benefits of not using it?
- Where used, it should be worded to deal with the particular circumstances of the case and not beyond what is necessary and appropriate.
- Employers can expect to be required to explain and justify their conclusions on the above issues, if the use of an NDA has been challenged.
Tackling the underlying problem - central record and monitoring
The guidance makes the point that settling a claim of discrimination is not the end of the matter. An employer should still investigate to ascertain what has happened. A claim may place the employer on notice of the existence of unlawful discrimination. It should take reasonable steps to address any discrimination identified and prevent it happening again in the future. If it fails to do so, the employer will not be able to rely on the statutory defence that it took all reasonable steps to prevent discrimination occurring.
The EHRC also makes a number of new recommendations in relation to tackling underlying problems. It suggests that employers should keep track of discrimination complaints and their use of NDAs to identify systemic issues and the measures needed to tackle them. Such steps will also help ensure that NDAs are not being misused in individual cases or to mask systemic problems.
The guidance recommends that:
- Employers monitor their use of NDAs;
- Large employers who use a significant number of settlement agreements and employers who operate across multiple sites should keep a central record of confidentiality agreements to monitor potential systemic discrimination issues;
- A central record system could include:
- When NDAs have been used;
- What type of claim they were used for;
- Against whom allegations of discrimination were made;
- What type of NDA was used and why they were used.
- Any record keeping should comply with data protection legislation;
- The board of directors should have oversight of the central record of NDAs;
- The use of an NDA should be signed off by a director or an appropriate delegated senior manager;
- NDAs should be signed off by an individual not involved in the act of discrimination or hearing any grievance related to it;
- The board should ensure that policies and procedures require managers to escalate concerns about the workplace culture, systemic discrimination or repeated or highly serious acts of discrimination by one individual.
The circumstances where an NDA will be unlawful arise where the NDA seeks to prevent a worker from whistleblowing, from reporting criminal activity or co-operating in a criminal investigation or from doing anything that the worker is required to do by law e.g. give evidence in court or to a regulator or the police. The guidance recommends that it should be made clear to the worker either in the agreement or by annexing an explanatory statement to the agreement that the NDA does not prevent them from doing any of these things. It also sets out people and organisations to whom workers are not prevented from talking, including medical professionals bound by an obligation of confidentiality, close family (provided they are asked to keep matters confidential), or potential employers (to the extent necessary to discuss circumstances in which their previous employment ended).
Penalty clauses must not be used i.e. any clause which requires the worker to repay compensation if the worker breaches the settlement agreement which is out of all proportion to the damage caused by the breach.
The guidance also states that workers should not be asked to give a warranty that they are not aware of any act or omission which would be a protected disclosure or a criminal offence, as this could potentially have the same silencing effect as an NDA. As it is unlawful to use an NDA to stop a worker making a protected disclosure or reporting a criminal offence, such warranties should not be used either.
The EHRC guidance means employers should be very clear on when it is appropriate to use an NDA, consider and record the reasons why an NDA has been used and be prepared to justify its use. The guidance specifically recommends that employers take advice. They should certainly do so if any doubt as to whether in any doubt whether (or to what extent) it is appropriate to use an NDA.
News & Insights
Tax efficient gifting – a silver lining of COVID-19
If there is a silver lining in the current economic situation it might be that it creates opportunities for tax efficient gifts to be made.
COVID-19 update: Companies House filings
New regulations were launched on 26 June that will temporarily extend the various filing deadlines for companies.