Simply put, yes – they offer value for employers and employees.
NDAs, or confidentiality clauses as they are better known in the UK, are widely used in employment contracts and settlement agreements to ensure the protection of confidential and sensitive information. They are also used to enable employers and employees to move on when a working relationship has broken down, in the knowledge that neither party can discuss details of the complaints raised, often by both sides.
It is the use of NDAs to prevent disclosure of alleged illegality and serious wrongdoing that continues to get press attention, particularly where some victims of workplace harassment have reportedly been intimidated into silence.
The problem the government is currently trying to solve, even in their own estimation, relates to a "very small minority" of "unethical" employers. Whilst it is clearly important to address the issue, the knock on effect may unintentionally prove damaging for some claimants and prevent parties from settling disputes which both would prefer to resolve.
The proposals in the consultation document issued on Monday (which closes on 29 April 2019) will impact both employment contracts and settlement agreements. The key issues being consulted on are:
- Whether to formally legislate to the effect that no provision in an employment contract, or settlement agreement, can prevent someone from making a disclosure to the police.
- Whether all confidentiality clauses in settlement agreements and contracts, should be required to highlight their limits, and what disclosures are not precluded.
- Whether the independent advice which the employee receives when entering into a settlement agreement should be specifically required to cover the nature and limitations of any confidentiality clause and the disclosures that the individual is still permitted to make.
- Whether to render void any confidentiality clause in a settlement agreement that does not meet the new requirement.
Any changes that may arise from this consultation process will still be some way off. However, those employers who routinely use broad confidentiality provisions in their settlement agreements will need to rethink their approach and whether they are receiving value for the compensation they have agreed to pay. Solicitors working in-house and in private practice may also face disciplinary action if involved in the inappropriate use of NDAs, even when acting in the best interests of their clients.
The unintended consequence of regulating the use of NDAs may be that employers who no longer feel they can have the full protection of confidentiality may be less inclined to settle, resulting in claims escalating. This will mean that more claimants have to pursue their claims through the courts – a daunting prospect for many who may be deterred from making a claim at all as a result. However the government decide to proceed, they should not forget that confidentiality clauses often benefit both parties – the lurid headlines only tell a very small part of the whole story.
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