Non-disclosure agreements: use or misuse?

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What are NDAs?

Non-disclosure agreements (NDAs) are frequently found in settlement agreements to settle potential claims against employers at the end of the employment relationship. They’re used to prevent individuals from disclosing information about their employment and/or circumstances surrounding their termination.

When used correctly, NDAs can be very useful to both parties. It allows them to move on from a potentially difficult situation by keeping matters confidential and prevents reputational damage to either party. This enables the individual to find another role without the stigma associated with their previous employment and prevents the employer’s reputation being publicly tarnished. It also avoids what can often be costly and stressful litigation.

MPs calling for change

However, recent studies have shown that some employers are misusing NDAs by attempting to cover up allegations of discrimination and harassment. The Commons’ women and equalities committee stated that this allows the accused to continue to discriminate and harass, and prevents the accuser from speaking out and supporting any other allegations.

Without proper legal advice, individuals feel unable to speak up. As financial pay-outs and agreed references can be used as bargaining tools, individuals may agree to terms even if that means they must keep their experiences a secret.

This secrecy can also have a detrimental impact on the individual’s future career and their mental health. The committee found that many feel they cannot continue in their chosen career and subsequently suffer with mental health issues.

What can employers do?

NDAs cannot lawfully be used to prevent individuals from making protected disclosures against relevant bodies. This includes allegations of sexual harassment. Employers should not produce agreements that are improperly drafted or ambiguous surrounding the issue of reporting a matter to a relevant regulatory body or the police.

It’s common practice for employers to contribute to the individual’s legal fees in obtaining advice on a settlement agreement. This ensures the individual is aware of what they’re entering into and they cannot be prevented from reporting any unlawful conduct. Individuals should not be pressured to feel that any financial package or reference is in exchange for their silence.

Moreover, the committee recommended employers investigate all complaints of discrimination and/or harassment even if a settlement agreement is signed. It’s also been suggested that employers are obliged to provide basic references as a minimum. This would prevent employers bartering this with the individual’s silence in any settlement offer.

Employers should ensure individuals entering into settlement agreements and NDAs are fully aware of the implications and they’re not pressured into signing by threatening to extract or reduce any key terms of the offer. Individuals should obtain comprehensive legal advice on the detail and extent of any NDA. Employers should ensure individuals are supported through this process, including but not limited to the handling of any complaints and/or grievances.

The future of NDAs

Recommendations continue to be made to improve the protection for victims of discrimination and harassment by::

  • increasing the time limit for bringing a claim of this nature from 3 months to 6 months
  • requiring the employer to investigate any allegations whether or not settlement is reached, and
  • making senior management and/or the board take overall responsibility for policies and procedures surrounding discrimination and harassment

This should alleviate some pressure from the individual making rash decisions about the future of any complaint. It also enables the employer to take any allegation seriously, giving support where needed and ensuring that NDAs do not allow harassment to continue in the workplace.