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NDAs: What are they, how do they work and what should be in them?


NDA

Introduction

With dozens of academics telling the BBC recently that they were “harassed” out of their jobs, and the BBC putting this down to the use of ’Non-Disclosure Agreements’  or so-called ‘gagging orders’, we take a look behind the media headlines to see what these agreements are, and to see whether clients really should be concerned by them.

What are NDAs?

NDAs are often used as just one part of a far wider ‘settlement agreement’, a far larger contract between the employer and employee to bring the employment relationship to an end. In many instances, settlement agreements may be a perfectly amicable way to bring to an end the relationship between the employer and employee. However, since one of the main effects of the agreement is to extinguish certain rights an employee has to claim against an employer, the employee has to think about whether it is worth balancing what they might get as a result of signing the agreement (such as a severance payment), against the potential financial value of any claim which they might have against the employer.   Settlement agreements may also be a helpful way for the employee to move on to new opportunities while drawing a line under issues such as poor performance, or difficult relationships with line managers.

So, how do NDAs figure in all of this?

NDAs are one aspect of the confidentiality provisions often found in settlement agreements. As the name suggests, confidentiality provisions seek to keep information learned during the course of the employment relationship confidential. Despite the negative press coverage, the aim of a confidentiality clause is usually legitimate and is suggested for a good reason. If an employer has invested time and resources into developing products and establishing and developing important business relationships then it is entitled to seek to protect these.  Equally, if there have been some difficulties in the working relationship or a dispute which has been resolved then it may be best for all parties to maintain a degree of confidentiality about these issues and the commercial arrangements that may have been concluded to achieve that resolution.  However, what such undertakings should not do is “cover up” behaviour which is unlawful or even criminal by putting pressure on a departing employee to keep quiet.

What the BBC News story highlights is the scenario where NDAs are used to make employees feel unable to report illegal conduct to the police or other relevant authorities.  Indeed, for English solicitors advising clients, the Solicitor’s Regulation Authority (SRA) has issued guidance stating that solicitors should not give advice on agreements which would prevent clients from using their rights to report matters to the police or other authorities, for example, under ‘Whistleblowing’ legislation.  In other words, such agreements and the provisions they contain can serve a legitimate purpose but must not go too far, even where, on one view it might appear to protect a clients interest in doing so.

For the moment, how to regulate NDAs still remains a little unclear. The Women and Equalities Parliamentary Select Committee is currently gathering expert evidence into the use of NDAs, particularly in workplace situations where there is a background of allegations of unlawful discrimination, sexual harassment or sexual misconduct. Whether anything comes from this which leads to greater regulation remains to be seen.

One discussion taking place as part of the Select Committee’s consideration of the evidence is the greater use of ‘standard’ clauses. Whether this would have a positive impact remains to be seen, however by way of observation it was noted in the evidence sessions that it might be a way around the common criticism of the wording in such agreements (and the lawyers who draft them!) being “impenetrable” and perhaps also intimidating to and misunderstood by employees who sign up to them.

NDAs are just one facet of settlement agreements. Settlement agreements can be used for a variety of purposes.  They remain a useful tool but should not be abused and a key to avoiding this is to ensure that they are drafted and applied in an appropriate way by an experienced practitioner who understands how to balance the needs of the client and the ethical and professional obligations that can arise in this important area.

Chris Phillips is a specialist Employment Law Solicitor. We are always delighted to talk without obligation about whether we might meet your needs. Call Chris on 0131 225 8705 or email cphillips@thorntons-law.co.uk

Posted by Chris Phillips

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