Government Reforms (2): Consultation on confidentiality clauses

contract

What do we already know?

Confidentiality clauses or non-disclosure agreements (‘NDA’s) serve a useful purpose in the workplace. They can be used primarily in two ways: as part of employment contracts, to protect trade secrets for example, and as part of settlement agreements, for example to allow both sides of an employment dispute to move on with a clean break.

There are some limits on their use: mainly that confidentiality clauses are void if they purport to prevent someone making a protected disclosure, or taking a case to a Tribunal (unless within a COT3 or settlement agreement).

What’s new?

The Government has issued a consultation document which asks for  views on new measures to prevent the misuse of NDAs or confidentiality clauses in situations of workplace harassment or discrimination.  The consultation closes on 29 April 2019, and you can access it here.

The Government recognises that confidentiality clauses can be appropriate in both:

  • contracts of employment, to protect trade secrets and other confidential information; and
  • settlement agreements, where they typically prevent the employee (and often the employer) from disclosing information relating to the dispute. This can benefit both parties by facilitating a clean break and encouraging settlement, particularly where there are disputed allegations made by both parties against the other.

However, the Government wants to target the unethical misuse of, or lack of transparency in, confidentiality clauses and is consulting on whether it should:

  • legislate to ban confidentiality clauses which prevent a victim reporting or discussing potential criminal acts to/ with the police;
  • ensure any confidentiality clauses in employment contracts (as contrasted with settlement agreements) are included in the written statement of particulars of employment issued at the start of the employment relationship. Failure to comply would not render the confidentiality provisions of the employment contract void; but workers would be able to raise the issue at a Tribunal. They could seek a declaration or, if they raised it alongside another claim (e.g. discrimination), they could be entitled to extra compensation.
  • extend the requirement that an individual must receive independent legal advice before signing a settlement agreement, so that this advice must cover the confidentiality provisions and their limitations; and/or
  • require all confidentiality clauses in settlement agreements to highlight the disclosures which confidentiality clauses do not prohibit, and make any confidentiality clauses which do not comply with this void in their entirety.

Comment:  It will be a relief to employers that, although the consultation paper suggests some significant changes, the Government has stopped short of deciding to ban confidentiality clauses relating to harassment and discrimination altogether.

Confidentiality provisions often benefit staff as well as employers.  For example, they enable sensitive matters to be kept private by all involved, and facilitate settlement to the benefit of both parties.

However, it is worth noting that the proposals are not limited to disclosures about harassment and discrimination. The reforms would apply to all confidentiality clauses in both settlement agreements and employment contracts – including the proposal that the entire clause in a settlement agreement should be void and unenforceable if it does not include the required new wording.

Whatever the outcome of the consultation, we would recommend that all confidentiality clauses expressly state what disclosures an employee is not prohibited from making. They should also be drafted in plain English. The types of disclosures that should be allowed and expressly referred to when drafting employment contracts and settlement agreements, in addition to protected disclosures, include but are not limited to disclosures to:

  • a regulator or equivalent body regarding actual or suspected misconduct, wrongdoing or serious breach of regulatory requirements;
  • report a criminal offence to a law enforcement agency (and co-operating with any law enforcement agency regarding a criminal investigation or prosecution);
  • participate in investigations or proceedings brought by regulatory/professional bodies relating to matters arising from an individual’s employment;
  • comply with other legal or regulatory obligations;
  • professional advisers and doctors (or those responsible for providing healthcare to an individual);
  • immediate family; and
  • relevant tax authorities.