Blog - The Verdict
MSB Solicitors Liverpool
Tuesday, 18 June 2019 10:57

NDAs: Are they unfair ‘gagging’ clauses, or, a useful tool to provide certainty and clarity ?

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Non-Disclosure Agreements, or NDAs, have featured regularly in the news in recent times. It is, however, not always obvious what they are, what they entail, and how legally binding they can be.

The recently reported cases involving Sir Phillip Green’s company, The Arcadia Group, and their reported use of NDAs with former employees has caused significant debate about their use.

These cases alongside the US cases involving Harvey Weinstein’s company, Miramax, and the now infamous #MeToo movement, have brought the use of NDAs firmly under the spotlight.

What is an NDA?
An NDA (Non-disclosure Agreement) is a legal contract between at least two parties, such as an employee/worker and an employer.

Whilst they can apply to commercial arrangements, in this blog, we will focus on their use within the employment relationship.

In UK practice, it is most common to find an NDA clause/s within the terms of a Settlement Agreement, which were formerly known as Compromise Agreements.

Settlement Agreements are often utilised by employers to bring the employment relationship to an end with an employee. They are becoming more and more popular, due to the many advantages they contain for both parties, including settling the majority of claims the employee could potentially advance against an employer, and restricting what the parties can tell others about the agreement and the background leading to it. The latter is achieved by multiple clauses which will contain what the media refers to as an NDA.

An NDA clause/s sets out information the parties agree not to share with anyone else. An NDA will normally allow an employee to share the information with very limited parties only, such as their spouse, immediate family and some professional advisers, such as solicitors.

Typical examples of what NDAs may be used to agree include:
•    That an employee will not reveal sensitive business information about the company they are leaving;
•    What an employer will and will not say in the future about an employee (usually covered by way of an agreed reference);
•    The parties will be unable to reveal to any other party the background to the agreement and/or the fact the agreement even exists;
•    The parties will not make or publish any adverse or derogatory comments about one another, which could cause reputational damage; and
•    The confidential details of any settlement with an employee who is leaving the company.

When are NDAs not legally binding?
An NDA will not be legally binding if it tries to stop either party from reporting a criminal offence or giving evidence to a regulator, for example HM Revenue & Customs.

An NDA may also not be legally binding if one of the parties, has not been given sufficient time to think about the NDA or to seek independent legal advice.

It is, therefore, extremely important that both parties have a full understanding of the terms of the NDA and have had a chance to seek independent legal advice from a qualified specialist in the area.  

What happens if you breach an NDA?
If either party breaches the terms of the NDA, such as revealing information about a former employer or the events leading up to the NDA, the aggrieved party may take the other to court for damages. The party falling foul of the agreement could be liable for a breach of contract claim against them.

An employee may lose any money they received from their employer as part of any Settlement Agreement.

It is also likely that the breaching party will be ordered to pay the other’s legal fees.

What’s next for NDAs? -  Report by The Women & Equalities Committee of the House of Commons
The Women & Equalities Committee of the House of Commons has recently produced a report on ‘The Use of Non-Disclosure Agreements in Discrimination Cases’. The report comments on the fact that many parties feel forced to sign an NDA in order to reach a settlement with the other party.

However, forcing someone to sign an NDA can risk it becoming not binding, due to the lack of opportunity to seek independent legal advice.

The report contained a number of recommendations:
•    Require standard, plain English confidentiality clauses where these are used in settlement agreements.
•    Increase the time-limit for bringing a discrimination claim from three months to six months (the current law is three months from the alleged act of discrimination).
•    Require employers to pay the cost of employees seeking legal advice (currently employers usually make a limited ‘contribution’ towards legal advice, as opposed to paying for it all).
•    Strengthen corporate governance requirements to require employers to meet their responsibilities to protect those they employ from discrimination and harassment.
•    Require named senior managers (not HR) at board level or similar to oversee anti-discrimination and harassment policies and procedures and the use of NDAs in discrimination and harassment cases.
To be clear, the above recommendations are currently not law; however, it will become clearer over the next few months on whether the government decides to implement any of the recommendations put forward by the report.

Should you consider using an NDA?
We regularly prepare Settlement Agreements, which contain NDA provisions.

There is nothing wrong with utilising these documents, which have many benefits. We support the use of Settlement Agreements and NDAs and always advise clients to adhere to best practice principles, which we incorporate into the agreements we prepare, thus enhancing the likelihood that they will be both legally enforceable and fair.

Used properly, they are an extremely effective and important tool which employers and employees alike can benefit from.

We consider the certainty of a Settlement Agreement containing an NDA, in which the wording will be clearly set out and the parties will have been separately advised upon, will often outweigh the uncertainty of legal action.

We agree with below quote from leading employment Barrister, James Laddie QC:
“In most (not all) cases, they are essential to parties avoiding an expensive and traumatic hearing that neither side wants.”
Last modified on Tuesday, 18 June 2019 12:11

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