NDAs: Is it time to break the culture of silence?

May 28, 2019

Written By Becky Kells, Editor, AllAboutLaw

Non-disclosure agreements are commonplace across a wide variety of sectors. But recent events suggest that they are being used to keep crimes under wraps. We take a look at the Government’s recent action on unjust confidentiality clauses.

Non-disclosure agreements (NDAs) are nothing new in employment scenarios. Doctors who must observe patient confidentiality, financial-services staff with an insight into key markets, and indeed all workers who are exposed to sensitive information within their job are likely to have signed an NDA at some point.

An NDA is a legal document that enables two or more parties to share information with one another, but restricts that same information from others. NDAs are deemed necessary in situations where an employee becomes privy to information through their work that cannot be disclosed. Examples include businesses that deal with sensitive or confidential information that isn’t public knowledge, or situations where an employee could disclose information that puts their business at a competitive disadvantage.

Some NDAs are signed at the start of the employment, others at the end. If the individual does breach the NDA, the consequences can range from having to return any settlement money received to having to pay a vast financial penalty—in some US cases, the costs have been as high as $750,000 per breach.

NDAs used in employment-law contexts date back to the 1970s, when tech companies that dealt with troves of intellectual property and sensitive data utilised them to keep trade secrets from leaking out. NDAs became more and more commonplace in employment settlements from the 1990s onwards. The exact pattern of expansion can only be speculated upon: Neil Mullin, a US-based lawyer, suggested to Rolling Stone that it began with law firms themselves: “They may have instituted a regime of secrecy in their own workplaces and they liked it, and they recommended it to their own clients.”

Today, NDAs are used more frequently than ever before: a Parliament Select Committee heard in January that the use of NDAs ranged from covering up discrimination to standard redundancy. However, the necessity—and the ethics—of some NDA usage has recently been called into question, especially where NDAs appear to cover up illegal activity or workplace discrimination.

NDAs were used in the Presidents Club scandal of January 2018, where agency staffers employed as hostesses were required to sign a confidentiality agreement upon arrival at the Dorchester Hotel, where they worked an exclusively male event. A Financial Times investigation found that many hostesses were “sexually harassed, propositioned or groped”. The NDA signing was reportedly completed in a very short timeframe, and the women were not given a copy of the documentation.

Prior to the event, the hostesses were sent an email by their agency stating that “absolutely nothing” could be discussed or disclosed before, during or after the event—“ever”. Without a copy of the NDA they signed, or ample time to read the document, the hostesses likely had no idea whether or not they were permitted to complain to the police or agency.

Billionaire and retail boss Sir Phillip Green is also the subject of much controversy surrounding NDAs. It’s alleged that Green used NDAs to prevent staff from speaking out about racist comments and sexual harassment. Green denies the allegations—but following the publicity, the government launched a consultation to look at the way NDAs are used across businesses.

“Many businesses use non-disclosure agreements and other confidentiality agreements for legitimate business reasons,” said business minister Kelly Tolhurst of the consultation, which was held in spring 2019. “What is completely unacceptable is the misuse of these agreements to silence victims, and there is evidence that this is becoming more widespread. Our proposals will help to tackle this problem by making it clear in law that victims cannot be prevented from speaking to the police.”

In the Presidents Club scandal, the hostesses were told weeks after the event by their agency that there were no restrictions on reporting any crimes to the police, the agency or the Presidents Club. It reflects a widespread problem: many employees who sign NDAs believe they are unable to go to the police or start legal proceedings where relevant.

Discussions around NDAs started as a result of the #MeToo movement. Since women across the world began speaking out about instances of sexual assault, rape and harassment, a wave of criticism has washed over employers who aim to keep employees quiet about such crimes. Many women—including the ex-assistant to Harvey Weinstein, Zelda Perkins—felt compelled to break NDAs to speak about their experiences. It’s estimated that many more stayed silent, bound by confidentiality clauses the legality of which is now being questioned.

Perkins said she was “very pleased” that the government had taken steps to deal with NDAs. “However, I hope these steps will turn into larger strides of legislative change which will put an end to the powerful using the law as a tool of abuse.”

After #MeToo, many were critical of the murkiness surrounding NDAs—especially when it emerged that some alleged sexual harassment victims felt they wren’t allowed to speak even to a therapist about their experience. Speaking about the consultation, prime minister Theresa May said that “a change in the law is needed” to ensure that workers are “able to come forward, be aware of their rights and receive the advice they need” prior to signing an NDA.

NDAs are often called “gagging orders” in popular discourse, and recent events would indicate that individuals who have signed them do feel unable to talk—to the police, to therapists, and even to their own families.

But part of the need to review NDAs stems from the perpetuation of illegal activity. In the cases of Green and Weinstein, there are multiple alleged victims over long periods of time, meaning that criminal activity has allegedly been hidden from the public. Rather than a case of preserving anonymity and keeping trade secrets, NDAs like this allow alleged criminals to continue to commit their crimes without being reported.

Moving forward

However, there are times where it’s desirable for confidentiality to be observed on both sides. If an employee has any issues on their record as a result of performance-management review, they may negotiate an NDA in which this information stays confidential. In this case, an NDA would be in that employee’s best interests, as it would prevent details of potential misconduct from being public.

From the employer’s perspective, if a financial settlement is reached, NDAs might help to prevent other employees from seeking large financial settlements upon leaving the company.

When an NDA is, or has been, used to cover up misconduct on the employer’s part, the situation becomes more complex. Some participants in a UCL thinktank suggested that NDAs were seen as “enabling the alleged victims of wrongdoing to negotiate compensation using their silence as part of their leverage for a deal that they would not otherwise get”. Rather than preventing some victims from speaking about their experiences, this argument poses a different outcome, in which NDAs are “valuable for “victims” as well as “perpetrators “because they serve as a “bargaining chip for exposed and otherwise less-powerful complainants who may want a quick resolution and to “move on”.

On the flipside, victims who are misinformed as to the scope of an NDA might be prevented from seeking psychological or medical help, or from taking the matter to the police—which could be obstacles to their moving on.

It’s difficult to imagine an employment landscape with complete transparency—and professionals are reluctant to propose a blanket ban on NDAs. But it’s clear that steps need to be taken to reform them, and to decide exactly how far they can go.

The thinktank suggested that some clauses included in NDAs should be wrong on principle, including clauses that limited the ability of the individual to “seek professional advice or counselling” or “restrictions on reporting to the police, regulators and other authorities including giving the other party notice before doing so”.

The Law Society’s stance on NDAs also addresses this: “Clauses that suggest that the reporting of any criminal offence is prevented by an NDA are legally unenforceable…It is unlikely to be legitimate to ask a person to sign an agreement in which they agree not to disclose an unlawful act that has not yet happened, as the chances of such an agreement being legally enforceable are slim.”

A prevalent issue in employment NDAs is lack of clarity. There have been calls for more rigorous explanations at the contract delivery stage where an employment contract includes any confidentiality clauses. The thinktank criticised the use of “unclear and legalistic language, which is not easily understandable to a lay person or non-specialist”. Simply by not being informed of all clauses, or not being given ample time to read them, people may not realise their capacity to speak out.

There is also concern that workers aren’t given the opportunity to seek their own independent legal advice outside of the employment context prior to signing. Part of the problem is the clearly unjust use of NDAs to cover up crime—but another key part is people being unaware of their rights.

The government ran a consultation on confidentiality clauses from March 4 to April 29, to “better understand how confidentiality clauses and the legal framework around them work in practice”, and to “assess what changes are required to ensure individuals are appropriately protected from their misuse”. The new proposals brought forward by the government suggest making it illegal for an NDA to prevent the worker from taking any information to the police. But whistleblowing charity Protect has highlighted that the majority of NDAs deal with rights and equality law, rather than criminal law. The police have no role in the former. It remains to be seen what other changes will be made.

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