NDAs: The EHRC calls for employers to make important changes to their practices with settlement agreements

October 31, 2019

Summary

The Equality and Human Rights Commission has issued guidance on the use of confidentiality provisions in discrimination cases. The guidance, if followed in its entirety, would mean employers significantly changing the way they handle settlement agreements.

The Equality and Human Rights Commission (EHRC’s) guidance on the use of confidentiality provisions in discrimination cases is the latest development in the regulation of Non-Disclosure Agreements (NDAs). The EHRC guidance is non-statutory, so it seeks to set out best practice for employers rather than laying down the law. However, it goes much further than both the government’s recently proposed legislative reforms to NDAs and other existing regulatory guidance. Many of its recommendations represent a significant change from current employer practice.

Most of the EHRC’s recommendations cover settlement agreements (although there are also recommendations on confidentiality clauses used during employment). Key recommendations in the guidance regarding settlement agreements, and BCLP’s initial take on them, include:

1.      The EHRC’s default position is that in most cases employers should not have NDA provisions in their settlement agreements. Employers should consider, on a case by case basis, whether to include them

This is a significant departure from current practice and goes far beyond government legislative proposals. NDA provisions are often included by employers for good business reasons, for example to enable settlement without admission of liability. Employers may wish to check their justifications for including confidentiality provisions in their settlement agreements, and keep an eye on market practice and other regulatory developments in this area when deciding what steps to take in this regard. Employers may also wish to create internal guidance about whether, and if so how, to tailor their NDA provisions, on a case by case basis.

2.     NDAs, if used, should be mutual – that is, binding on both the employer and employee – rather than just imposing obligations on the employee

Making this the standard approach is likely to be impractical for large organisations, where it is very difficult to police the entire workforce to ensure confidentiality is maintained. If you decide to make your NDA obligations binding on both employer and employee, you may wish to limit the employer’s obligations to specified individuals who were directly involved in the employment issue and with its subsequent management.

3.     Employers should pay a contribution to employees’ legal costs for taking independent advice, even where no settlement is reached

It is typical for employers to currently pay a contribution to an employee’s legal fees, but only if they enter into a settlement agreement. In deciding whether to pay such a contribution regardless of settlement, employers may wish to balance the possible benefit that employees will be encouraged to take advice in order to achieve settlement against the additional financial layout for paying such contributions if no agreement is reached. In practice, we anticipate many employers will keep to the current default position of a fees contribution being conditional upon the settlement agreement, other than in a small number of cases.

4.     Employers should not use repayment clauses that are unenforceable as a penalty clause nor warranties that the employee is not aware of employment issues that they haven’t raised

Employers with standard repayment provisions in their settlement agreements should review them to check that they are not penalty clauses. In regulated sectors such as financial services, the use of warranties in settlement agreements is already limited to a certain extent. Employers in all sectors may wish to see how market practice and other regulatory guidance develops when deciding whether to remove such warranties from their standard documentation.

5.     Large employers should keep a central record of confidentiality agreements, and the use of NDA provisions should be signed off by a director or similar senior executive

These recommendations are intended to help employers identify systemic issues and tackle them. In relation to the record keeping recommendation, aside from the additional administrative costs involved, employers may wish to weigh the benefits of being able to identify and act on systemic issues against the additional administration costs. Also, if such records evidence historic mistreatment, these could be disclosable in litigation.

Requiring sign off on the use of NDAs by senior executives on a case by case basis is unlikely to be appropriate if employers decide to retain their standard NDA provisions in their agreements for now (point 1 above). However, fostering a positive workplace culture is a key theme in this context, so all employers may wish to encourage senior management to take an active role in doing this. In regulated sectors such as financial services, where there is already a strong focus on culture, employers may find it easier to adapt and implement these recommendations for their organisation.

This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.