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The row about NDA’s. How might this affect settlement agreements?

26 Oct 2018

There is currently a lot of comment surrounding the use of so called NDA’s (non-disclosure agreements) to shield perpetrators of abuse, harassment and discrimination from investigation into  their actions. Might this affect how employers are allowed to use settlement agreements? 

Under the terms of such NDA’s individuals, typically employees, agree to keep complaints and allegations of misconduct confidential in return for a financial payment. 

Outrage has peaked following the disclosure that a prominent businessman, now named under parliamentary privilege as Philip Green, had succeeded in the Court of Appeal in relying on such a NDA to prevent the publication of allegations relating to his conduct. Theresa May would not comment directly on the case, but said some companies used such agreements "unethically". She said NDA’s  should not silence whistle blowers and that the government would take action to make sure employees knew their rights.

One might wonder what the parliamentarians and press are referring to. NDA’s are typically commercial agreements designed to protect trade secrets and confidentiality. However what they are talking about here are the confidentiality provisions that are found in nearly all settlement agreements that are routinely processed in their thousands every week by HR professionals lawyers and union advisers.

Might this affect how employers are allowed to use settlement agreements? 

The starting point is that the general criticism misses the point that the vast majority of such agreements are reached not for the sole purpose of silencing victims of bad or appalling behaviour. On the contrary their primary purpose is usually to record  a compromise reached to avoid protracted internal processes or litigation. They are acknowledged as an integral part of the pre termination negotiation process which employment legislators have introduced to facilitate amicable employee exits. 

As part of those legitimate processes it is entirely reasonable that an employer should protect the confidentiality of such an arrangement. Often the agreement will be entered into without any admission of liability with neither the employer’s position nor the employee’s position having been accepted. It is in the interests of neither party for the debate to be continued publicly after compromise is reached. Similarly the confidentiality provisions protect the privacy of an arrangement that neither party may want to be made public.  

The criticism also tends to ignore the fact that the employee will receive independent legal advice and will receive payment in return for entering into the settlement agreement. 

It is fair to say that the Court of Appeal, in its judgement, does not miss these points. They explicitly point out the legitimacy and benefit of settlement agreements, including the confidentiality provisions contained in them.

Of course, the use and regulation of settlement agreements should not facilitate inappropriate behaviour or protect the perpetrators of abuse, harassment or discrimination. 

However, to a significant degree the current legislation protects the whistle blower and the public when disclosure is genuinely in the public interest. The Employment Rights Act 1996 makes any contractual term which seeks to prevent an employee from making a protected disclosure ineffective. Even where the technical requirements for a protected disclosure are not satisfied the disclosure may be lawful if the information being disclosed is sufficiently in the public interest. 

Alternative approaches are also available to the government. The obvious point is that the focus should squarely be behind efforts to effect a cultural shift which challenges and ultimately extinguishes such unacceptable behaviour (perhaps starting in the House of Commons). Alongside this the government could introduce similar arrangements to those that currently exist for the compulsory reporting of safeguarding issues in some sectors or introduce reinforcement of the protection for whistle blowers similar to that which exists within the financial services industry. 

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