Non-disclosure Clauses in Settlement Agreements – do you know your rights?

We are not currently offering Employment advice services. The following is for informational purposes only.

We live in the post #metoo era, where celebrity and political sexual harassment and cover up scandals have become a mainstay of the media. As a result, non-disclosure agreements and non-disclosure clauses (NDAs) have come under greater scrutiny both generally and more specifically in an Employment law context.

In the world of Employment law, non-disclosure, or confidentiality, clauses are commonly found in settlement agreements. These are offered by employers as a way to end the employment relationship and to prevent the employee bringing a claim in the employment tribunal or court. Typically this in exchange for an agreed sum of money, usually some of it tax free, and/or an agreed reference.

One of the key attractions for employers in offering a settlement agreement is that the issues which have led to the end of the employment relationship will remain confidential, potentially saving them reputational damage.

Given employees are potentially signing away fundamental rights by accepting an offer to settle, it’s important that they know exactly what it is they are agreeing to and what this means in practical terms for them. It’s also equally as important that employers who are thinking of offering any such agreement know the limits of what they can and can’t do – they don’t want to go through the time and expense of pulling together an agreement to find that it’s not worth the paper it’s written on.

It’s obvious then, why this particular area of law is a minefield. Indeed, such is the sensitivity of this topic that back in March 2018 the Solicitors Regulatory Authority produced a warning notice about NDAs and earlier this year the Law Society issued a practice note on the use of NDAs and confidentiality clauses in an Employment law context. The Practice Note sets out the Law Society’s view of good practice in this particular area and reminds solicitors of the key mandatory principles which they should bear in mind when drafting and advising on NDAs.

The key stipulation is that NDAs cannot prevent an employee from making a “protected disclosure” under Section 43A of the Employment Rights Act 1996: ‘blowing the whistle’, in other words. All settlement agreements and COT3s issued by ACAS must now include a clause that makes this clear.

In the context of sexual harassment this means that where a clause suggests that the reporting of a criminal offence is prevented by the NDA, it will be legally unenforceable. Attempts to stop the reporting of information to a regulator are also likely to be unenforceable. Employers reusing an out of date settlement agreement should therefore take urgent legal advice to have it updated.

Settlement agreements are also only legally binding if the employee receives independent legal advice from a “relevant adviser” authorised lawyer (i.e. a solicitor, barrister or authorised trade union representative) before they sign the agreement. To this end it has become customary for employers to offer employees a contribution towards their legal fees when a settlement agreement in on the table.  Whilst this is simply good practice at the moment, the outcome of a recent government consultation on the issue proposed introducing legislation to enhance the independent legal advice received by individuals signing confidentiality clauses and that seems eminently sensible.

If you are an employee considering accepting a settlement offer or an employer thinking about making one then it might be worthwhile taking a look at our handy FAQ on settlement agreements (Found here compromise-settlement-agreements) for a better understanding of how they work.

If you need advice on the terms of any agreement then you shouldn’t hesitate to contact Cartwright King for expert independent legal advice here.

Legal Disclaimer.

All advice is correct at time of publication.