Last reviewed 9 October 2019
Non-disclosure agreements (NDAs), also known as confidentiality agreements, can be the cause of much scrutiny in employment. In this article, Ben McCarthy, employment law writer at Croner-i, examines the legal implications of using NDAs, alongside upcoming developments in this area to be aware of.
What is an NDA?
A non-disclosure agreement is a legal contract used as a way of preventing people from discussing confidential business information. Essentially, the primary aim of an NDA is to keep trade secrets private by protecting sensitive information from falling into the hands of a competitor. In most organisations, NDAs established between an employer and their employees are typically reserved for more senior employees, or those with a more detailed understanding of business operations. For example, some employers may wish to put in place an NDA for employees who work in their IT departments due to the information they may have access to. Having said that, there is no restriction on issuing NDAs and employers can request that all their staff sign one as a standard business procedure if they wish.
Generally, an NDA is signed by individuals as a part of their contracts of employment. Alternatively, employers may require an NDA to be signed when an individual announces their plans to leave the company. Under current legislation, it is perfectly acceptable to ask staff to sign an NDA, and the Government offers guidance on their usage. When used correctly and for legitimate business purposes, NDAs can form a useful part of a successful business by protecting intellectual property.
NDA controversy and the Government’s response
Despite the legality of their use, NDAs have increasingly been under the spotlight in recent times, particularly with the rise of the #MeToo social media campaign. Since last autumn, #MeToo has seen a significant number of women come forward claiming to have been sexually harassed within a professional environment. Some of the stories that have been brought to light suggest that NDAs have been used to help cover up and facilitate sexual harassment in the workplace, or signed in conjunction with financial pay-offs in response to valid grievances. A high-profile example was a situation that arose in 2018 at a charity fundraiser dinner that, up until that year, had been held annually by the Presidents Club Charitable Trust to raise money for numerous charities. Hospitality workers at this event accused the guests of sexually harassing them and claimed that they had been asked to sign an NDA beforehand to secure their silence in this situation.
The first thing employers should be aware of, is that NDAs cannot legally prevent an employee from blowing the whistle on unlawful behaviour. Dismissing an employee who has blown the whistle, such as going to the police in relation to sexual harassment that has taken place in the company, can result in a substantial fine from the employment tribunal for automatic unfair dismissal. However, in order to tackle the issue of NDA misuse, the Government held a consultation between March and April 2019 that sought views on proposals to improve the regulation of NDAs. The consultation, which aimed to limit misuse of confidentiality clauses and enhance clarity on what they should and should not cover, received 582 responses from trade unions, campaign organisations, legal institutes, individuals and businesses.
Upcoming changes to the law
In July 2019, the Government responded to the consultation, announcing developments to the current laws surrounding NDA use. In its response, the Government considered answers to the questions posed within the consultation alongside additional commentary from the Women and Equalities Committee. First, the Government promised to legislate so that NDAs can no longer include provisions that prevent individuals disclosing information to the police or relevant authorities. Although NDAs cannot currently prevent employers disclosing this information, there was a consensus that a number of employers wrongfully included such restrictions within their NDAs, which may have been effective in making employees question their legal rights in this scenario. Whilst employees will also be able to make disclosures to health care or legal professionals, the Government was unwilling to extend this provision further as these bodies were legally obliged to keep the information confidential.
The consultation also found that the terminology used by employers within NDAs can often prove misleading for employees and cause them to misinterpret any limitations within the agreement. As a result, the Government will require all NDAs to be constructed using “standard plain English”, thereby ensuring staff have a correct understanding about what information they can share and with whom. Given that the wording of NDAs will vary greatly from one organisation to the next, guidance will be produced by Acas and the Equality and Human Rights Commission to advise employers on how to draft suitable agreements going forwards.
In another measure to remove uncertainty around NDAs, the Government will ensure that when seeking legal advice on the contents of a NDA from a legal professional, this individual will be entitled to have explained to them any specific legal disclosure rights contained within. This is designed to make sure staff have a full understanding of the implications prior to signing and that they aren’t left with unsatisfactory agreements. Finally, there is a commitment to introduce new enforcement measures when confidentiality clauses are included in settlement agreements, or employment contracts, that fail to abide by legislation. In this scenario employees will now be able to seek additional compensation from their employer in an effort to discourage the unlawful use of these agreements.
What will these changes mean for employers?
It remains to be seen when these new laws will receive approval from parliament. The Government conclude by stating they will legislate “when Parliamentary time allows”. However, once they are approved this should have a significant impact on the way in which NDAs and confidentiality clauses are used in the future. Going forward, while employers will still be free to use NDAs as part of their normal business practices, it will be important to ensure any relevant adjustments are made in light of these developments when they are introduced. In its response, the Government also made reference to an ongoing consultation by the Government Equalities Office into sexual harassment in the workplace. Presumably, the findings from this consultation will heavily influence further developments in this area.
The Government continues to stress that confidentiality clauses are legal and, when used correctly, can be a valuable tool for organisations to protect their business interests. That said, employers should be sure they are up to date with the law surrounding their use. Failing to abide by these new requirements will not only risk rendering NDAs invalid, but could also result in costly reputational damage for employers given the increased media focus on workplace harassment and discrimination.