Can we still include confidentiality clauses in settlement agreements?

Andrew Masters

Partner & Head of Employment

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May 8, 2019

Categories Employment Law

FAQ about confidentiality clauses in settlement agreements

Question: We have read a lot of press commentary regarding non-disclosure agreements following workplace allegations against employers. We settle the majority of potential cases by using settlement agreements which contain confidentiality clauses. Can we still continue to use confidentiality clauses in settlement agreements?

Answer: As an employer yes you can – but you need to be careful that the confidentiality clause is clear as to what is covered and what rights the employee retains.

The headlines in the press are somewhat misleading as to the widespread use of confidentiality clauses. The concern over their use relates predominately to workplace allegations of bullying and sexual harassment.

The vast majority of the referred to ‘non-disclosure agreements’ are ‘settlement agreements’ which settle potential employment claims from a worker against their employer.

It is therefore important to remember that these agreements do not exist solely in relation to allegations of bullying and sexual harassment, but include situations such as poor performance, misconduct, long-term absence, and redundancy.

Settlement agreements ‘do what they say on the tin’

Claims that are settled under a settlement agreement are usually without admission of liability and are often offered to avoid legal fees and associated management costs in defending a claim. This approach may be taken by an employer even if their defence has good chances of success.

Settlement agreements therefore ‘do what they say on the tin’ – they settle the allegations/claims, without a winner or a loser as determined by a tribunal.

Employers therefore do not want individuals discussing the allegations and settlement as though they have ‘won’, in order to avoid any incorrect inferences of guilt in relation to the allegations.

A key benefit to both the individual and the employer is that the matter is dealt with swiftly. This can be of particular use to an individual at present as ‘simple’ tribunal hearings are currently being listed for around 12-18 months after a claim has been lodged.

It is also unfortunately the case that as well as valid allegations of bullying and sexual harassment, employers face vexatious claims from disgruntled employees who are simply ‘chancing their arm’ on a claim.

Without being able to use confidentiality clauses in settlement agreements it is therefore unlikely that an employer would wish to enter into one.

A key requirement of a settlement agreement is that employees entering into a settlement agreement must seek legal advice on its terms and effect. This therefore gives them a good level of protection in relation to these clauses.

Current guidance states that confidentiality clauses should:

  • Be specific as to what is covered;
  • Expressly state that an individual is not prevented from making a protected disclosure under section 43A of the Employment Rights Act 1996 (whistleblowing); and
  • Expressly state that an individual is not prevented from making a disclosure to a regulator regarding any misconduct, wrongdoing or serious breach of regulatory requirements, or reporting a criminal offence to any law enforcement agency (e.g. the police).

As an employer you can therefore use confidentiality clauses in settlement agreements, but we strongly recommend that you follow these guidelines and seek legal advice in order to ensure they offer the protection sought, protect individuals’ rights, and avoid any allegations that the clause is void.

You should also be aware that the government is currently undertaking a consultation on  Confidentiality clauses: measures to prevent misuse in situations of workplace harassment or discrimination’.

Possible outcomes of the consultation include extending the obligation to receive legal advice to expressly cover ‘the nature and limitations’ of any confidentiality clause in a settlement agreement, and requiring employers to use stipulated wording to cover the above recommendations.  Beware that a likely enforcement provision will be, that if the required wording is not used, the entire settlement agreement will be void.

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