As part of a flurry of responses and new consultations issued in the last days of Theresa May's government, the response to the consultation on measures to prevent the misuse of confidentiality clauses in the workplace was published. It sets out a number of significant legislative proposals which, when implemented, will necessitate redrafting of these clauses in both employment contracts and settlement agreements.
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 in March 2019.
The response to the consultation has now been published, including some significant proposals for reform. That said, it confirms that confidentiality provisions have a legitimate place in the employment context and can, when used correctly, benefit both employers and employees.
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.
Disclosure to police, regulated healthcare and legal professionals
The first proposal suggests 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 that they can take the necessary steps to identify and report a suspected crime. The WEC found cases where victims felt unable to report sexual harassment to the police. Some individuals had also reported an increase in mental health problems and isolation because they were unable to talk to appropriate professionals. While recognising this issue, the response emphasises that permission to disclose should be extended only 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.
Clear and specific limitations
The second proposal suggests 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 a confidentiality provision and are not given the mistaken impression that they cannot disclose in permitted ways (eg, reporting criminal conduct to the police or legally protected whistleblowing). The limitations of any confidentiality clauses must be explained in settlement agreements and set out in employment contracts as part of the written statement of particulars.
Wording of confidentiality clauses
The third proposal suggests 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 instead opts 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.
Limitations of confidentiality clauses
The fourth proposal suggests legislating so that independent legal advice on settlement agreements must include reference to the limitations of confidentiality clauses. The current legislation governing settlement agreements provides that a worker must receive independent legal advice on the terms of the agreement 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.
Enforcement measures for confidentiality clauses
Legislating to introduce enforcement measures for confidentiality clauses that do not comply with legal requirements is suggested in the fifth proposal. 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 employment tribunal for a declaration as to what the particulars should have been. This will not apply retrospectively. The additional compensation available for failing to provide written particulars currently amounts to only two or four weeks' pay. Therefore, it is unclear how effective this form of enforcement will be.
While the response states an intent 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.
Preventing workplace sexual harassment and discrimination
Finally, the sixth one proposes focusing on the prevention of sexual harassment and discrimination in the workplace. The consultation paper includes no proposals relating 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 reports annually on the use of confidentiality clauses in sexual harassment and discrimination cases, 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 preventing 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.(1)
These proposals are significant but not surprising considering the widespread concern about misusing 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.
Further details on the precise nature of the proposed legislation and guidance are awaited. The response states that there will be legislation to implement the above proposals "when Parliamentary times allows". This is likely to take some time, as Parliament is preoccupied with Brexit. Finally, it is important to remember that this response was published under 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.
(1) The new consultation on sexual harassment in the workplace is summarised here.
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