01 May, 2019
Earlier this month, a solicitor at magic circle law firm Allen & Overy was referred to the Solicitors Disciplinary Tribunal by the Solicitors' Regulation Authority ("SRA") over a non-disclosure agreement ("NDA") signed by a former assistant of Harvey Weinstein, the eponymous epicenter of the #MeToo movement. Zelda Perkins, who was employed as an assistant to film producer Weinstein at Mirimax in the 1990s, alleged she was made to sign an NDA negotiated by Allen & Overy by her employer after witnessing a sexual assault. The referral has cast a confusing shadow for both lawyers and employers. In what circumstances can NDAs be used and how far can they go?
The #MeToo movement brought to the forefront of the international consciousness the conflicting understanding of the perceived and true reality of workplace environments for many women, and it became clear to many employers that changes to workplace culture need to be made. This, however, brought with it a concern within many industries that the historical use of NDAs could have prevented victims of sexual harassment from speaking to the relevant authorities. Not only was this concerning in relation to the impact on victims, the prevention of necessary action by authorities, the obstruction of truth and mechanisms for change within workplace environments, but also the obstruction of the rule of law and administration of justice. Confidentiality issues are often complicit in any settlement of a dispute by agreement rather than by recourse to litigation, particularly in relation to settlements involving allegations of sexual misconduct in the workplace. Often the party accepting the settlement is requested to keep any allegations forming the content of the dispute confidential and consequently is required to enter into some form of NDA.
In 2018, the government published a consultation paper seeking views on proposals to regulate confidentiality clauses in employment contracts and specific clauses in settlement agreements in relation to discrimination and harassment. The proposals include:
Essentially, the proposals permit the continued use of NDAs and confidentiality clauses, but regulate their scope. The government is aware that confidentiality may benefit the worker as well as the employer, and any ban could make employers less likely to consider settlement, but recognises the need to regulate the manner in which they are implemented.
In March 2018, the SRA issued a warning notice aimed at solicitors advising on the use of NDAs. It stated that whilst it recognised that NDAs could legitimately be used to protect commercial interests, confidentiality and reputation and be a mutual benefit to both parties, solicitors must not use NDAs in situations where employees may feel unable to contact authorities. Also employees should not be pressured into entering into an NDA with the improper threat of litigation (such as defamation), harassment or misconduct.
Alongside the SRA warning notice, the Law Society issued guidance on using NDAs in settlement arrangements aimed at both employers and those operating in the legal industry. The guidance mirrors the comments in the SRA warning notice and the issues discussed in the government consultation paper. It stresses the need to ensure that the use of an NDA does not, either intentionally or unintentionally, act as a gag on employees, and they should not be placed under any undue pressure to enter into such an agreement. It should be made clear that by entering into an NDA they are not precluding themselves from reporting issues contained in the NDA (or similar issues) to the Police or their industry Regulator, or from speaking to their lawyer, doctor or other medical practitioner in a confidential environment.
The bottom line is that employers and their legal advisers will need to ensure a balance between the need to draw a line under an acrimonious and/or sensitive dispute, and the necessity to ensure the legal validity of the NDA. We now await the results of the government consultation to see how it proposes to tackle any statutory regulation around the use of such provisions.
In the interim, it is advisable for employers to review their standard form Settlement Agreements, COT3s and Employment Contracts to ensure that any NDA or confidentiality clauses are drafted clearly, and in accordance with SRA and Law Society guidance. They should also adhere to any sector specific regulatory requirements. Care should be taken to ensure that all clauses that have the effect of an NDA, such as a repayment or indemnity clause, are reviewed, irrespective of the label placed on them. By carrying out such an audit to ensure compliance, and considering ways to tackle wider harassment and diversity issues, litigation risk can be minimised.