Is it time to say RIP to NDAs?

Brand and his team were described as litigious, with many people fearing speaking out because of the risks. Non-disclosure agreements (NDAs) and threats of defamation claims are often used to keep information from the public domain. But still the victims spoke out. The threat of litigation only delayed the reputational damage. 

 

With the misuse of NDA’s being publicly exposed (once again) and people openly breaching them, are such agreements still legitimate or effective? Or is it time to consign them to legal history? 

 

 

NDAs are often included in employment contracts and settlement agreements to avoid the risk of damage when the employment relationship ends. But non-disclosure agreements have gained a bad reputation after being misused to prevent victims speaking out about criminal offences – notably by Harvey Weinstein and Miramax. Simply including an NDA in an agreement is often seen as a sign of wrongdoing and pressure - Phillip Schofield had to deny the damning accusation that his colleague had signed such an agreement. 

 

Greater awareness and a poor perception of NDAs have impacted on their effectiveness. Recently, racism at Yorkshire County Cricket Club was exposed after Azeem Rafiq refused to sign an NDA. More people are willing to break these agreements, and public sympathy is often behind them. Employers can take legal action in such cases, but, once the information is public, a financial settlement can't repair that damage. Taking legal action might even make the situation worse, as it could be seen to be punishing the individual for speaking out, confirming prejudices that NDA’s are used to bully former employees into silence. 

 

Despite their reputation, it has never been lawful to use confidentiality agreements to overrule whistleblowing legislation or the rights of staff to make protected disclosures (including reporting a criminal offence, health and safety danger or miscarriages of justice). An NDA which tries to prevent staff whistleblowing would not be enforced by the court. Unfortunately, people were not always aware of this, which allowed NDAs to be misrepresented and misused. In many cases there was an imbalance of power between the parties, so often people would take what they were told at face value and fear the consequences of speaking up. Greater awareness around NDAs has gone some way to reducing this problem.  

 

But these rules do not prevent NDAs being used to hide wrongdoing that isn’t criminal or dangerous. So, there may still be cases where NDAs are used lawfully to stop the public being aware of wrongdoing. 

 

 

There are still some legitimate uses for NDAs – in particular, protecting sensitive information and providing an incentive to resolve a dispute. 

 

NDAs can be used to protect valuable and sensitive information such as inventions, customer information and business practices by requiring employees not to disclose the information outside of the business. With the government planning to limit the use of non-compete clauses, confidentiality agreements could become even more important to protecting business information. 

 

The campaign group Can’t Buy My Silence, founded by one of the whistleblowers in the Harvey Weinstein case to fight the misuse of NDAs, accepts that this is a legitimate use of such clauses and “our campaign to change the law does not affect this use of an NDA.” 

 

In these cases, legal action can be an effective remedy, preventing further misuse of information and recovering the financial losses caused by the breach. 

 

 

Companies often enter settlements on a commercial basis, knowing they haven’t done wrong but accepting that settling is far cheaper and quicker than a legal case. Settling saves both parties time and money, as well as reducing the demands on an already stretched tribunal system. Confidentiality clauses are regularly used in settlements which resolve disputes as wide-ranging as redundancy, pay disputes, absence, poor performance and discrimination. 

 

But as much as employees give up their rights to a claim when settling, companies give up their right to be cleared of wrongdoing. Without confidentiality, even employers who have done wrong might as well let the case run its course, hoping that the claimant will run out of financial or emotional resources in the process. This could deprive many workers of a just and beneficial outcome. 

 

While claimants usually have less resources to fight a legal claim, they might have less to lose than a large business risking its reputation. Depending on the wrongdoing in question, pushing for change might be more important than any settlement- as was the case for Azeem Rafiq. With more awareness around NDAs and support for those breaking them, employees might need more incentive to sign away their rights. Campaign group Pregnant then Screwed surveyed UK women who had signed an NDA after suffering pregnancy and maternity discrimination and found that 1 in 5 received a settlement of less than £5,000. Depending on the individual’s role and circumstances, this might seem a small risk. 

 

 

Non-disclosure agreements still have a valuable role but they have gained a bad reputation (deserved or not), and should be used with caution. 

 

It is sensible to only use such agreements when you are certain they are justified. There is a greater risk than ever of employees not only refusing to sign such clauses but disclosing that you asked them to sign one. It is important that, if this does happen, you can justify the clause. If you can’t justify it’s use, then don’t include it. 

 

If an employee does refuse a confidentiality agreement, your reputation might depend on how you respond to the dispute. This could mean accepting a mistake and working to improve your organisation – as Yorkshire County Cricket Club did after failing to reach an agreement with Azeem Rafiq that included a confidentiality agreement. Or it could mean being willing to stand behind your decisions and justify them transparently. 

 

One way to be sure you can stand by your actions is to make sure you have acted lawfully. Getting legal advice early on, either at the start of a dispute or to prevent disputes, can be invaluable, giving you confidence to justify your decisions.  

 

If you do decide to include an NDA in a settlement agreement, instruct a solicitor to draft it so you know it is legally enforceable. It is also sensible to instruct a solicitor to represent you in negotiations, to be sure that you can’t be accused of pressuring an employee into signing an agreement. 

 

Get in touch for help to avoid disputes or advice about using NDAs.