Confidentiality clauses: what businesses need to know

The #MeToo movement has shone the light on the misuse of confidentiality clauses, also known as “gagging clauses” and non-disclosure agreements (NDAs), by certain individuals in positions of power to silence victims of harassment and/or discrimination. What has been the government’s response?

This article was first published in Reward Strategy Magazine.

As the government made clear in its response to the Women and Equalities Select Committee’s inquiry into sexual harassment in the workplace, harassment of any sort is abhorrent and cannot be tolerated and it has called for greater regulation on the use of confidentiality clauses. On 4 March 2019, the Department for Business, Energy & Industrial Strategy (“BEIS”) launched a consultation putting forward proposals to prevent the misuse of confidentiality clauses within the context of employer/employee relationships.

The consultation closed on 29 April 2019. Though the focus of the consultation is the use of confidentiality clauses in the context of workplace harassment and/or discrimination, the proposals are intended to apply to the use of these clauses in relation to all matters arising in the workplace.

Current use of confidentiality clauses

Confidentiality clauses create a contractual obligation to keep certain information confidential and are legitimately used by many businesses to protect their business interests.  These clauses are primarily used in employment contracts to protect trade secrets, for example and in settlement agreements to help both parties move on from a dispute, with relevant carve outs, such as an employee who signs a settlement agreement not being precluded from “whistleblowing”.

Despite their legitimate use by the majority of employers, confidentiality clauses have attracted increased negative media coverage because of concerns about their misuse, with calls for their abolition to protect individuals from an actual or perceived imbalance of power and to enable individuals to discuss the issues they have faced with relevant people, including the police, doctors or therapists.

Proposals for change

The BEIS consultation contains various proposals to tackle the misuse of confidentiality clauses including:

1.  Disclosures to the police

Currently, an employer cannot use confidentiality clauses to prevent an employee making a disclosure they are obliged to make by law and making a protected disclosure for the purposes of “whistleblowing”. Any attempt to do so would render the clause void.

The government is proposing to introduce legislation that prohibits confidentiality clauses in an employment contract or settlement agreement which seek to prevent a person from making a disclosure or reporting a crime to the police. This will allow victims of harassment and/or discrimination to report concerns to the police without fear of reprisal even if they have signed a confidentiality clause. The government has also asked whether disclosures to other people or organisations should be excluded from confidentiality clauses but it does not want to make this list too broad.

2. Clarity of drafting

Even where confidentiality clauses are used legitimately, the government has raised concerns that they are often drafted in a way that hides from employees their rights and protections.

Standard, approved wording for confidentiality clauses was recommended by the Women and Equalities Select Committee and the government has asked whether it should set a specific form of wording.

The government’s view is that confidentiality  clauses should be drafted in a way that makes it clear to an employee that the clause does not prohibit certain disclosures and that the limitations of the confidentiality clause, whether in an employment contract or settlement agreement are clearly set out. For example, any confidentiality clauses and their limitations should be summarised in the written statement of particulars issued at the start of employment.

3. Enhanced requirement for legal advice

For a settlement agreement to be valid, the employee must have received independent advice from, for example, a lawyer or trade union official. The government proposes to extend this requirement so that employees receive advice specifically on the effect and limitations of any confidentiality clauses and the disclosures they are permitted to make. Failure to provide such advice would render the clause unenforceable and an individual who breached it could not be sued subsequently.

This change, if implemented, could lead to an increased cost to businesses as template settlement agreements and advisers’ certificates will need to be amended.

4. Enforcement

Enforcement measures will differ depending on whether the confidentiality clause appears in the employment contract or settlement agreement. As mentioned above, the limitations of any confidentiality clause should be summarised in the written statement of particulars and failure to provide the written statement is a right that can be enforced in the Employment Tribunal and compensation awarded.  Any confidentiality clause in a settlement agreement that does not meet the new requirements will be void and there could be the risk of reputational harm for the employer if the departing individual then spoke publicly about the circumstances of the termination of their employment.

Key points

Whilst these are merely proposals at this stage, businesses should take steps now to limit their risk by:

1. Reviewing their current confidentiality clauses in employment contracts and settlement agreements to identify what amendments may be needed in the light of the government’s proposals, giving particular consideration to whether the clause is drafted too broadly, the limitations of the clause are clearly stated and when disclosure is permitted.
2. Ensuring that the circumstances in which confidentiality clauses are agreed in settlement agreements do not give rise to any indication of bullying or duress.
3. Training line managers, HR and anyone else involved in negotiating confidentiality clauses to ensure they are aware of the current law in this area and the government’s proposals for change.