I have set out my response to the BEIS consultation on NDAs for those interested. If you are thinking of responding yourself, the date of closing is 29 April and the documents can be found here: https://www.gov.uk/government/consultations/confidentiality-clauses-measures-to-prevent-misuse-in-situations-of-workplace-harassment-or-discrimination
I am Richard Moorhead, Professor of Law and Professional Ethics at UCL, Faculty of Laws, London. I am also a specialist adviser to the Women and Equalities Select Committee on nondisclosure agreements in discrimination cases. This response, however, is an entirely personal one.
I have spent many years researching lawyers and legal services. I have a great deal of experience of engaging with lawyers and understanding the problems they face and sometimes create. I have conducted a great deal of empirical work looking at professional ethics and regulation in particular.
As a result of my engagement with the issues nondisclosure agreements, I have heard evidence from, and discussed nondisclosure agreements with many employees subject to or threatened with such agreements, as well as employers, and lawyers working in the area. The issue of nondisclosure agreements should be seen as part of a broader set of issues around workplace conflict, power, and the adequacies and inadequacies of the legal system. I will not rehearse those issues here.
I would like to state, however, that I accept there are difficulties around deciding how to deal with NDAs and striking the right balances. I also want to emphasise one particular sense that I have having spoken to a number of ordinary individuals subject to or threatened with NDAs. That is the enormous power that legal instruments, that they do not usually understand, have over them. There are two very strong emotions that have come out repeatedly in my conversations with them. Those emotions are fear and shame. Shame that they would agree to cover up behaviour which they regard as reprehensible. Fear that if they speak out, even in highly cautious and anonymous ways, that they will be subject to legal process, enormous costs, and for some even imprisonment. The last fear is not entirely fatuous given risks of contempt should they be subject to court orders.
That introduction offered, let me turn to the questions and the consultation paper.
Do you have any examples of confidentiality clauses, in employment contracts or settlement agreements, that have sought to cloud a worker’s right to make a protected disclosure, or overstretch the extent to which information is confidential? If so, please describe these.
The Zelda-Perkins Harvey Weinstein agreement is well known. 22 years old, it sought to prevent, inhibit and shape disclosures that could be made to the police. Other elements of the agreement are almost as reprehensible.
The Philip Green-Arcadia case published an agreement which was not challenged before the court, but which contained probably unenforceable penalties clauses, and a warranty which had the effect of defeating or inhibiting whistleblowing rights. Granting whistleblowing rights and then seeking to undermine them through other elements of the agreement is a not uncommon element of nondisclosure agreements according to Protect, the whistleblowing charity.
If these clauses had been subject to proper scrutiny they would have, in my opinion, been shown to be clearly improper, and unenforceable (see my evidence to the Women and Equalities and Select Committee here for a discussion of the problems). In broad terms the agreement grants whistleblowing rights and then asks the signatory to promise they know of no reason they will exercise them. That promise is backed up by a hefty indemnity (risk of paying large sums of damages should it be breached).
NDAs routinely inhibit victims of harassment discussing their experiences with other victims who are contemplating or are bringing claims because, even where they provide for engagement with civil process (i.e. typically only allow for disclosure when compelled, e.g. by a court order).
Non-disparagement clauses are extremely wide and very frightening for those subject to them.
Any uncertainty or risk of breaching an NDA is exacerbated by large clawbacks or indemnities.
The fear engendered by threats of legal proceedings and indemnities/clawbacks means that in general the likely impact of any NDA is to be interpreted as being of wider effect than the strictly appropriate ‘legal interpretation’ even before one considers whether the actual restrictions imposed by the agreement are lawful and enforceable.
In your view, should all disclosures to the police be clearly excluded from confidentiality clauses? Why?
Yes. Because the effect of NDAs, are to chill reporting and disclosure even when this is not intended or required under law. The reporting of allegations of misconduct by the general public should not be subject to tests which even sophisticated individuals cannot interpret accurately or indeed where there is a lack of useful and helpful guidance from the courts (such as the public interest test under whistleblowers legislation).
What would be the positive and negative consequences of this, if any? Should disclosures to any other people or organisations be excluded?
More crime would be exposed. The perpetrators of harassment and discrimination would be less likely to engage in such behaviour. Organisational cultures might also be expected to improve if they adopted a more positive and transparent and constructive approach to dealing with discrimination and harassment, which risk of exposure would encourage. The police would have a higher volume of reports to deal with, and this would increase workloads, not all of which would reveal investigable or serious crime.
As to disclosures to any other people: there should be no public interest barrier to disclosure to any regulator placed in the way of individuals. I have received evidence from a number of members of the public uncertain whether they can report misconduct to regulators because of NDAs and whom cannot be clearly advised by charities such as Protect that they can disclose. The fear-factor associated with NDAs is serious and real for these individuals. This is true of even relatively anodyne NDAs but sometimes because of frankly outrageous NDA drafting which purports to exclude the rights to report matters to regulators either indirectly or in terms. This is a problem wider than discrimination and sexual harassment: I have seen serious examples affecting whistleblowing and misconduct, including allegations of serious crimes, in banking, gambling, and health and have heard repeated reports in relation to education (schools and Universities – although I have seen no specific examples there of actual clauses).
Are there any other limitations you think should be placed on confidentiality clauses, in employment contracts or settlement agreements?
Consideration should be given to banning or regulating clawbacks and indemnities. The benefits of rough and ready quantification of losses in advance associated with NDA breaches are significantly outweighed by the potential for, and actual incidence of, abuse.
Non-disparagement clauses are unnecessary (there are already legal protections for libel, for example) and overly used and should be limited or banned.
Do you agree that all confidentiality clauses in settlement agreements, and all written statements of employment particulars, should be required to clearly highlight the disclosures that confidentiality clauses do not prohibit?
Yes, and they should specify narrowly the information that should not be disclosed, with a failure to do so rendering the prohibitions void.
As part of this requirement, should the Government set a specific form of words?
Yes, a standard form of words would provide a clear standard, stating for all stakeholders what is presumptively acceptable,
Do you agree that the independent advice a worker receives on a settlement agreement should be specifically required to cover any confidentiality provisions?
This should go further. It could cover, for example:
- The reasonableness of such a clause.
- Whether any derogations from a standard wording, if there were such a thing, are justified and fair.
- It should certify whether the clause is likely to be enforceable or not, is fair or not, and failures to gain this certification would be prima facie – but rebuttable – evidence of professional misconduct on the part of lawyers negotiating and drafting such contracts (e.g. as an attempt to take unfair advantage of a weaker party).
Such a certification power would assist in evening up the inequality of bargaining power in such negotiations and inhibit the introduction of inappropriate NDA terms.
Do you think a confidentiality clause within a settlement agreement that does not meet any new wording requirements should be made void in its entirety? What would be the positive and negative consequences of this?
Rendering a clause void is a remedy of very limited use. The risk any party to such an agreement would have to take on to challenge such an agreement is sever both in terms of legal costs and potential claims under indemnities. The beneficiary of the NDA benefits by reason of the drafting of the NDA and their (usually) more powerful economic position in ways which effectively mean unlawful contracts are treated as lawful whether or not the contracts are in fact lawful.
Even when such matters come before the courts they may not be subject to proper scrutiny. The Court of Appeal and High Court’s treatment of the NDAs in the Philip Green/Arcadia case is an example of this. Clearly and deeply problematic elements of the agreement appear to have been missed entirely by the Court. Also, a claim that the agreement contained a penalty clause was not seriously entertained when it should have been given the closest of scrutiny by a court seeking to balance the public and private interests at stake in such a case.
Do you agree with our proposed enforcement mechanism for confidentiality clauses within employment contracts? What would be the positive and negative consequences of this?
There is a real need to reset approaches to NDAs. The examples I have seen suggest that some in the legal profession do not take their professional obligations to respect the rule of law and the administration of justice seriously. And those minded to be more professional in their approach nonetheless come under pressures from clients keen to cover up allegations of misconduct. The low likelihood of challenge to agreements means that the risks to those using agreements in and beyond the grey zone is very low indeed even with greater scrutiny from professional regulators. I agree with the Women and Equalities Select Committee recommendation that it be made an offence to propose confidentiality clauses designed to prevent the disclosure of a protected disclosure or a criminal offence. A risk of prosecution will be a powerful tool aligning those wanting such agreements and advising on such agreements towards proper practice.
More detailed requirements around the provision of independent advice of the kind outlined above, and standard wording and a code of practice setting out appropriate approaches would assist lawyers and businesses in keeping their approach to NDAs within lawful bounds. The uncertainty in what is acceptable, which the authors of this consultation paper worry about, is of their making, not of the employees who have alleged harassment or discrimination. And it is the authors of that uncertainty that benefit in ways which I believe are harmful to organisational cultures and our body politic. They should not seek the benefit of risks that they create. Complying with the law would not be difficult.