Response published to consultation on misuse of confidentiality clauses

Background

The use and misuse of confidentiality clauses or non-disclosure agreements (“NDAs”) remains in the spotlight, particularly where allegations of sexual harassment are involved. In response to pressure for better regulation of NDAs from groups including the Women and Equalities Committee (“WEC”) and the Equality and Human Rights Commission (“EHRC”), the Department for Business, Energy and Industrial Strategy published a consultation paper on proposed measures to prevent misuse of NDAs last March.

The response to the consultation has now been published, including some significant proposals for reform. It does however confirm that confidentiality provisions have a legitimate place in the employment context and can, when used correctly, benefit both employers and employees.

The proposals

The Government has decided to proceed with most, but not all, of the options proposed in its initial consultation paper. The response sets out the following six proposals: 

• Legislating so that confidentiality clauses cannot prevent disclosures to the police, regulated health and care professionals and legal professionals. This is intended to provide individuals with more clarity on who they can disclose to, and ensure they can take the necessary steps to identify and report a suspected crime. The WEC found cases where victims were made to feel unable to report sexual harassment to the police. Some individuals had also reported an increase in mental health problems and isolation through not being able to talk to appropriate professionals. While recognising this issue, the response emphasises that permission to disclose should only be extended to regulated professionals who are bound by duties of confidentiality. As a result, therapists and counsellors (who are not, strictly speaking, regulated professionals), are excluded from this proposal.
• Legislating so that confidentiality clauses must include clear and specific reference to their limitations. This proposal is designed to ensure that employees understand their rights at the point of signing up to a confidentiality provision, and are not given the mistaken impression that they cannot disclose in permitted ways – such as reporting criminal conduct to the police or legally protected whistleblowing. The limitations of any confidentiality clauses are to be explained in settlement agreements, and also set out in employment contracts as part of the written statement of particulars.
• Producing guidance on the wording of confidentiality clauses for solicitors and legal professionals. The response reports that legal professionals and employers did not support the consultation proposal for specific wording to be required in all confidentiality clauses, due to concerns about lack of flexibility. In light of this feedback, the response opts instead for production of guidance for solicitors and legal professionals who are responsible for drafting settlement agreements. This is to be combined with a requirement in legislation that provisions explaining the limitations of confidentiality clauses are “clear and specific”.
• Legislating so that independent legal advice on settlement agreements must include reference to the limitations of confidentiality clauses. Current legislation governing settlement agreements provides that a worker must receive independent legal advice on the terms of the agreement in order for it to be valid. The response proposes extending this to require specific advice on the limitations of any confidentiality clauses. While the current legislation arguably already covers this, the proposed change will certainly provide greater clarity. When combined with the proposal (above) that settlement agreements must set out the limitations of any confidentiality clauses, this should not add significantly to the amount of independent legal advice required in a settlement situation.
• Legislating to introduce enforcement measures for confidentiality clauses that do not comply with legal requirements. With respect to confidentiality clauses in employment contracts, the response proposes enforcing compliance through the right to a written statement of particulars. This means that if an individual brings a successful Employment Tribunal claim, and their statement of particulars also contains a deficient confidentiality clause, they will (in certain circumstances) be eligible for additional compensation. An employee will also be able to apply to the ET for a declaration as to what the particulars should have been. This will not apply retrospectively. As we noted in our previous article, the additional compensation available for failure to provide written particulars currently only amounts to two or four weeks’ pay. It is therefore unclear how effective this form of enforcement will be.

While the response states an intention to introduce new enforcement measures more generally, it does not confirm whether non-compliant confidentiality clauses in settlement agreements will be treated as void. The response reports that more respondents agreed with these proposals, but leaves the conclusion unclear. Further, the response confirms there is no proposal to make it a criminal offence for an employer to propose or use a non-compliant confidentiality clause.

• Focusing on prevention of sexual harassment and discrimination in the workplace. The consultation paper did not include any proposals related to monitoring and reporting, but there were several roundtable discussions on this topic alongside the consultation exercise. The response rejects the WEC’s proposal to require employers to collect data and report annually on the use of confidentiality clauses in cases of sexual harassment and discrimination, on the basis that this was unlikely to be meaningful and could discourage their use in beneficial situations. Rather, the response proposes focusing efforts on prevention of sexual harassment and discrimination in the workplace. To that end, a new consultation on sexual harassment in the workplace has been launched through the Government Equalities Office (summarised in this article).

What next?

These proposals are significant but not surprising, in light of the widespread concern about misuse of NDAs. More radical proposals, such as criminal liability for proposing an invalid confidentiality clause, have been rejected, and the response expressly reiterates the legitimate purposes of confidentiality provisions in the workplace. This is a welcome sign for employers and employees alike, as fairly drafted confidentiality clauses provide an effective mechanism for both parties to reach an agreement and move on.

Importantly, these proposals are not limited to situations of harassment and discrimination and cover all types of confidentiality clause. This is likely to require some significant redrafting of standard contractual confidentiality clauses in order to ensure that the explanation of their limitations is compliant with the new law.

We now await further details on the precise nature of the proposed legislation and guidance. The response states that there will be legislation to implement the above proposals “when Parliamentary times allows”. This is likely to take some time, with Parliament being rather preoccupied with the small matter of Brexit at the moment. Finally, it is important to remember that this response was published under Theresa May’s premiership. There is no guarantee that Boris Johnson’s new administration will decide to implement these proposals in the same way – or at all.