Is there a future for NDAs in a post #metoo landscape?
As a result of the Weinstein sexual harassment scandal and subsequent #metoo movement, a spotlight has been shone on sexual harassment and discrimination in the work place.
Confidentiality clauses (often referred to as non-disclosure agreements) are routinely used when a settlement is reached with a departing employee who has raised complaints prior to their exit. Sometimes, as a quid pro quo for settlement monies, employers seek the comfort of knowing that the ex-employee cannot disclose the terms of their settlement or continue to air complaints that the employer may vehemently deny. Without this comfort, many argue that employers will be less inclined to settle as they will not be able to properly defend themselves against such allegations – potentially resulting in litigation that could have been avoided.
There has been an increasing focus on the use and, more importantly, the misuse of such clauses in situations of workplace harassment or discrimination.
Earlier this year, the Women and Equalities Select Committee (WESC) published a report on the use of NDAs. This report raised no less than forty-five recommendations for the government in relation to the misuse of NDAs in discrimination cases. These recommendations included potentially onerous reporting requirements and extended beyond the scope of NDAs. The report also raised concerns that employers have tended to avoid tackling and preventing future harassment and victimisation and have instead used their time and resources to put pressure on employees to walk away from allegations.
The government published its full response to the WESC's report on 29 October 2019. This response, coupled with its response to its own consultation on NDAs, sets the stage for how NDAs – as well as harassment and discrimination issues more generally - will be viewed going forward.
The government stressed that it believes that there is a legitimate place for such agreements in both employment contracts and settlement agreements. However, it agreed with the Committee that employers' use of NDAs in a bid to cover up cases of sexual harassment and discrimination in the workplace is unacceptable. It stressed that using NDAs as a tool to "silence and intimidate victims of harassment and discrimination cannot be tolerated", and it is clear from its commitments to introduce legislation that the landscape is changing.
Here, we consider the potential effect of this response on NDAs going forward, and other significant proposals and measures relating to discrimination that are in the pipeline, including a move to clamp down on repeat offences and the reintroduction of liability on employers for third party harassment.
Legislative Proposals
Non-disclosure agreements
The government has committed to a number of measures which to seek to "strike the right balance between continuing to allow the legitimate use of NDAs and preventing their misuse", which will undoubtedly change the way in which organisations approach NDAs going forwards. The key measures, which are likely to affect recruitment businesses going forward, are set out below.
Legislate so that no provision in a NDA can prevent disclosures to the police, regulated health and care professionals and legal professionals.
The WESC proposed that it should be for individuals to decide whether they wish to disclose why they left a previous employer if the case involved allegations of unlawful discrimination, and NDAs should not prevent this. To many, this would somewhat undermine the purpose of entering into a settlement agreement. The government decided not to go as far as this.
Instead it has announced that it will introduce legislation prohibiting NDAs from preventing disclosures to the police and certain regulated professionals. Despite the WESC's recommendations to do so, it chose not to extend this provision to include family and friends in the list of individuals who must be carved out of an NDA. This was on the basis that these individuals are not subject to any professional confidentiality requirements and would not therefore be held accountable if they were to disclose the information to others.
Legislate so that limitations in NDAs are clearly set out in employment contracts and settlement agreements.
The government will make it a requirement for NDAs to make very clear the extent to which disclosure can lawfully be made, with a view to providing certainty to individuals whilst preventing possible abuse by employers.
This is not limited to settlement agreements and would include introducing a requirement that all written statements of employment particulars set out the limits of NDAs. Where a worker does not receive an outline of such limits, they will be entitled to receive additional compensation in an award for a successful employment tribunal claim.
Legislate to enhance the independent legal advice received by individuals signing NDAs.
Currently a contractual settlement agreement will only be valid in relation to Employment Tribunal claims if the employee takes independent legal advice as to the terms and effect of the agreement. The government is extending the advice workers receive to include specific advice on the nature and limitations of NDAs.
The government stopped short in implementing the WESC's recommendation that further financial contributions should be payable by the employer to cover the costs of legal advice and representation in respect of negotiations, regardless of whether the settlement agreement is signed. This will come as a relief to many employers.
The government also shied away from implementing standard form wording to be included in NDAs, appreciating that the circumstances will dictate the drafting. The government did, however, commit to producing guidance on the drafting requirements for NDAs, which will be welcomed by many employers.
Introduce enforcement measures for NDAs in written statements of employment particulars and settlement agreements that do not comply with legal requirements.
If an NDA in a settlement agreement does not follow the new legislative requirements once in force, the confidentiality clause will be void.
It is unclear whether this would apply to NDAs retrospectively, i.e. rendering confidentiality clauses which were drafted before the implementation of the legislation and do not conform to the new requirements once in force void. Given this, employers should consider revisiting their current precedent agreements to set out the limitations of the NDAs, and explicitly carve out disclosures to the police and certain regulated professionals.
Other measures
Legislate to allow Employment Tribunals to impose a tougher enforcement regime for repeat offenders.
Where an employer is repeatedly have found to have committed breaches in relation to the same types of harassment or discrimination, legislation will be introduced providing Employment Tribunals with the ability to impose tougher sanctions. The government has outlined that sanctions will include uplifts in compensation, costs orders and aggravated breach penalties. Employers who are regularly faced with similar complaints need to be mindful of this, and seek to stamp out any issues sooner rather than later.
Re-instate protection against third party harassment.
The government has indicated that it likely to reinstate the provisions relating to 'third party harassment', making employers liable for harassment of their staff by third parties. This would include harassment from contractors, clients or even candidates. Unless employers can demonstrate that all reasonable steps were taken to prevent the harassment, employers could potentially be on the hook for the actions of individuals and organisations they do not have direct control over if their employees work closely alongside them and are subjected to harassment as a result.
Potential further changes on the horizon
In addition to the above, further changes could be on the horizon as some of the WESC's recommendations have essentially been 'parked', pending the outcome of another ongoing consultation by the government, and will be returned to in due course. These include:
Overseeing, investigating and reporting on discrimination and harassment
The government is still considering the recommendation that employers should be required to appoint a senior manager (at board level or similar) to oversee policies and procedure relating to harassment and discrimination, and another senior manager to oversee the use of NDAs in discrimination and harassment cases. The WESC also recommended that a nominated director should oversee procedures and policies around the use of NDAs and review settlement sums. This remains a possibility.
The government has invited views on whether "additional transparency measures are required to ensure employers are taking the prevention of sexual harassment seriously", although it did note its opposition to the idea of identifying one specific director to be responsible for overseeing these topics, as that would undermine the collective responsibility of the Board.
The government has so far stopped short of passing legislation to require employers to investigate all discrimination and harassment complaints, regardless of whether a settlement is reached. It is concerned that if a formal requirement were introduced, it would be very difficult to specify the level of investigation required in each case. However, the government did commit to further consideration of those proposals. It noted that it shared the WESC's concerns that repeated inappropriate use of NDAs within an organisation may prevent it from identifying, and as such stamping out, the underlying problem.
Many employers will be relieved to hear that the government chose not to implement the requirement to collect data on: (i) the use of NDAs in settlement agreements; and (ii) complaints and grievances raised concerning harassment and discrimination. Businesses were concerned about the burden of such requirements and the government was live to this. The government also outlined that simply knowing the number of NDAs would not, in itself, be a useful statistic.
The government is, however, considering the recommendation that employers are required to report on maternity retention rates, so employers would be advised to start monitoring this now, and see if there are any potential issues within the organisation that could be addressed.
Statutory requirement to provide a reference
The government sees merit in the Committee's recommendation that it should be a statutory requirement for all employers to provide at least a minimum reference, confirming employment dates. It has committed to consulting on this matter in due course.
The Employment Tribunal system, including damages and time limits
The government is considering further the Committee's proposal to extend the time limit to bring a claim relating to harassment or discrimination in the Employment Tribunal from three to six months. This raises some concerns that employees who may have a number of potential claims will be subject to different time limits, making matters confusing.
Additionally, the government has committed to undertaking a wider assessment of the Employment Tribunal system, covering the Committee's concern that particular groups are disadvantaged by aspects of the system. The government is also considering if the law provides a sufficient deterrent against breaches, meaning that penalties could increase in due course.
What does this mean for your business?
Senior management must be made aware of any concerns that employees may have with systematic issues and should take steps to stamp out a culture that silences victims whilst leaving harassment or discrimination issues to fester. Whilst the vast majority of organisations will not have a culture of discrimination, the government has drawn a clear line in the sand that repeated wrongdoing or improper behaviour will not be tolerated going forward.
It is more important than ever that allegations are seriously investigated, and any perpetrators are sufficiently sanctioned. The government has made clear that it is committed to looking into positive interventions to help prevent and better monitor cases, without jeopardising the use of NDAs where victims would find them of benefit. Employers would be well advised to take a proactive approach to these issues now – if they haven’t already started doing so - in order to prepare for the new legislation, and to avoid any reputational damage caused by getting this wrong.
Whilst NDAs still have their place, thought should be given as to the wording, and automatic inclusion, of NDAs, and even more attention should be focussed on dealing with any underlying concerns - extending to third parties.