knowledge 2 November 2018 |

Non-Disclosure Agreements – Employment Settlements

In that case the Court of Appeal granted an interim injunction preventing the Daily Telegraph from publishing allegations of “discreditable conduct” by a business executive towards five employees in circumstances where those employees had entered into settlement agreements containing NDAs. The decision has re-ignited the debate around the appropriate use of NDAs in the context of harassment allegations, a debate which has resulted in the executive in question being named under parliamentary privilege thus thwarting the effect of the injunction. In light of the controversy, British Prime Minister Theresa May has committed to bringing forward measures for consideration and consultation to improve the regulation of non-disclosure agreements, noting in the House of Commons that “it is clear that some employers are using them unethically”. Employers relying on NDAs should therefore be aware of the need for careful drafting and negotiation with employees, in order to ensure those NDAs are in fact enforceable.

What is an NDA?

An NDA is a contractual commitment, often included as part of a settlement agreement or employment agreement, obliging one or both parties to the agreement to keep certain information confidential. This information usually includes matters such as the terms of the agreement, the level of monetary settlement and the underlying issues leading to the dispute or complaint. A party who breaches an NDA may be sued for damages arising from their breach of contract.

What’s the issue?

The #MeToo scandals have prompted intense discussion around the propriety of the use of NDAs in circumstances which might be seen as allowing abusive behaviour to go unchecked. Such considerations have already led to legislative changes in the US. The Californian legislature has introduced legislation (effective from 1 January 2019) which prohibits any provision in a settlement agreement that prevents disclosing factual information in relation to a complaint filed in a civil or administrative action relating to sexual assault or sexual harassment. The State of New York has prohibited the inclusion of NDAs in the settlement of sexual harassment claims, unless the inclusion of such a provision is the alleged victim’s preference. The fallout from the ABC case suggests similar legislation may be on the horizon in the UK. Indeed, this issue had already been the subject of a Report on Sexual Harassment in the Workplace by the Women and Equalities Committee of the House of Commons. That Report noted that NDAs were being used “unethically by some employers and also some members of the legal profession to silence victims of sexual harassment” and recommended the introduction of improved controls and regulations.

What do organisations need to do?

Although many of the issues raised by the enforcement of NDAs in the context of sexual harassment claims, such as the entitlement of an employer to protect its reputation and good name, the employee’s right to freedom of expression, both parties’ rights to privacy and the public interest in the public administration of justice touch on rights protected by the Irish Constitution, the issue has yet to be considered in an Irish context.

Nonetheless the ABC case provides some guidelines for Irish employers in relation to NDAs. In that case a persuasive factor for the Court of Appeal in overturning the decision of the High Court, was that each of the employees had received independent legal advice, each had a right to disclose information to regulatory or statutory bodies and there was no evidence that the settlement agreements were reached through bullying, harassment or the placing of undue pressure on the employees in question. The Court of Appeal also recognised the public benefit to enforcing contracts which have been freely entered into by the parties in order to settle their disputes. A factor of particular importance for the Court was that the High Court had not considered the important role settlement agreements and NDAs have in settling disputes and avoiding litigation and the need for courts to respect contracts that parties have freely agreed. The Women and Equalities Committee Report acknowledged the value of NDAs in certain circumstances, noting that “there may be times when the victim makes the judgment that signing an NDA is genuinely in their own best interests”. What the Report was highly critical of however was the use of NDAs “to threaten, bully and silence victims” giving rise to the risk that individuals would refrain from reporting serious wrongdoing to the police or would feel compelled not to assist in law enforcement investigations or prosecutions or unable to speak openly and in the public interest about serious wrongdoing.

Employers should ensure that (a) an employee or former employee obtains independent legal advice, (b) the circumstances in which the compromise agreement is signed do not give rise to any indication of bullying or duress; and (c) the compromise agreement includes appropriate exclusions allowing the employee to disclose information to the appropriate legal and regulatory authorities.

Adopting these measures will put the employers in a good position to defend its NDA.

How can we help?

Our Employment, Pensions and Incentives Group has significant experience in advising many of Ireland’s major employers on workplace disputes, including the drafting and negotiating of settlement agreements. Please contact your usual contact in the McCann FitzGerald Employment, Pensions and Incentives Group, for further information.