Settlement Agreements: Non-disclosure clauses

What do we already know?

A Non-Disclosure Agreement (NDA) is a legal contract. It sets out how you share information or ideas in confidence. Sometimes people call NDAs confidentiality agreements.  Non-disclosure clauses are also used in Settlement Agreements to agree that certain confidential or sensitive information will not be disclosed by one or either party. Settlement agreements are largely used when agreeing an employee’s exit and/or to settle a complaint including Tribunal proceedings.

What’s new?

The Solicitors Regulation Authority (SRA) has issued a warning to law firms and solicitors that it will be tough on those who misuse NDAs. This warning will not only affect those regulated by the SRA but will also impact any business advised by practitioners.

To be clear, the SRA has not said that NDAs or settlement agreements with non-disclosure clauses are prohibited. Indeed, these are legitimate legal devices to protect confidential issues, which are of benefit to both employers and individuals. The SRA’s concern relates to the use of NDAs in limited specific circumstances, particularly where the aim of the NDA is to protect the disclosure of serious misconduct which would be criminal or in breach of regulatory rules.

The SRA has helpfully listed those circumstances in which it would consider the NDA to have been improperly used in breach of its rules.  These circumstances are where any provision prevents or seeks to deter a person from:

• reporting misconduct or a serious breach of regulatory requirements to the SRA, or making an equivalent report to any other body responsible for supervising or regulating the matters in question;
• making a protected disclosure under the Public Interest Disclosure Act 1998 (whistleblowing disclosures);
• reporting an offence to a law enforcement agency such as the police; or
• co-operating with a criminal investigation or prosecution.

Additionally, the SRA’s warning provides that NDAs or disclosure clauses must not be used to:

• influence the substance of what needs to be reported or disclosed, or effect the extent of co-operation with an investigation or prosecution;
• improperly threaten litigation against, or otherwise seek to improperly to influence, an individual in order to prevent or deter or influence a proper disclosure; and/or
• prevent someone who has entered into an NDA from keeping or receiving a copy.

The SRA warning also states that NDAs or other settlement terms must not stipulate, or give the impression, that such reporting or disclosure is prohibited.

Although this warning does not form part of the SRA Handbook, the SRA may have regard to it when exercising its regulatory functions.

What does this mean for employers?

If you use your own template Settlement Agreements then we recommend the following amendments:

Secrecy clause:  the best course of action would be to amend the secrecy provisions in your Settlement Agreement to expressly carve out the items referred to above. Settlement Agreements should already contain a carve out for whistleblowing disclosures, so it is just a case of ensuring the other items are similarly permitted.

Non-disparagement clause:  seeking to restrict any negative or adverse comments by the employee post-termination could be viewed as an attempt to influence the substance of a report or disclosure as prohibited by the SRA. Therefore, it may be appropriate to include an appropriately-worded carve out in respect of such reports or disclosures.

Repayment and/or indemnity clause:  If you decide not to introduce the carve outs to the secrecy and non-disparagement provisions as suggested above, then you may wish to reconsider the drafting of any clauses which require the employee to either repay monies or indemnify the employer where they commit a material breach of the terms of the Settlement Agreement. Without the carve outs, such repayment and indemnity clauses could be viewed as a means of seeking to prevent or deter or influence such reports or disclosures.

Further information on this issue can be found on the SRA’s website, available here.

If you have any concerns about the content of your Settlement Agreement template or NDA, given the above SRA warning or otherwise, then please do contact Luke Menzies or any member of the team on 0117 325 0526 for further advice.