UK: Government consultation on regulation of confidentiality clauses in settlement agreements and employment contracts

Further to its response to the Women and Equalities Select Committee report last December (see here), the Government is consulting until 29 April 2019 on proposals to regulate confidentiality clauses (commonly referred to as “NDAs” or non-disclosure agreements) in employment contracts and settlement agreements.  The Government has rejected calls to ban the use of such clauses in harassment and discrimination cases, but instead proposes:

  • clarifying in law that no provision in an employment contract or settlement agreement can prevent someone making “any kind of disclosure to the police … whatever the issue or disclosure, regardless of whether it meets any legislative whistleblowing tests”. The consultation asks whether this should be extended to disclosures to any other persons, and whether any other limitations should be imposed.
  • requiring a clear, written description of rights to be given to the employee before anything is signed, to be included in confidentiality clauses in employment contracts or within a settlement agreement. The Government does not feel that a prescribed form of wording is helpful, as it could quickly become out of date, but suggests legislation that requires confidentiality clauses to make clear that they cannot prevent whistleblowing disclosures, reporting of criminal offences, discussing any matter with the police, or highlighting other relevant statutory obligations such as disclosing information to a court. In relation to employment contracts, the confidentiality provisions and limitations on them should be summarised in the written statement of particulars (and would be subject to the current enforcement provisions allowing tribunals to increase compensation awards by 2 to 4 weeks’ pay if other claims are brought successfully). A confidentiality clause in a settlement agreement that does not meet the new wording requirement would be void in its entirety.
  • in relation to settlement agreements, extending the requirement for the employee to receive independent advice so that, for the settlement agreement to be valid, the advice must cover the nature and limits of any confidentiality clauses in the settlement agreement and the disclosures a worker is still able to make.

The Government is not proposing making it a criminal offence to propose a confidentiality clause designed to prevent whistleblowing or reporting of a criminal offence given the difficulties of enforcement. Equally, there is no mention of any proposal to require businesses to notify the use of settlement agreements with non-disclosure provisions to some form of regulator. The consultation document is here.

The proposals go slightly further than the SRA warning notice and Law Society guidance issued earlier this year, in particular in suggesting that any confidentiality clause should expressly permit discussing any issue with the police and requiring independent advice on a settlement agreement specifically to cover the scope of the confidentiality clause. Pending the outcome of the consultation, it would be prudent to update existing template settlement agreements to comply with current best practice as set out in the SRA/Law Society guidance, in particular to make clear what types of disclosure remain permitted notwithstanding the confidentiality agreement.

Having an express carve-out for permitted disclosures will become critical should the proposals be adopted, as a failure to do so would prevent an employer from enforcing the confidentiality provision in its entirety. Employers would also need to consider revisions to confidentiality clauses in employment contracts and written statements of particulars – the consultation does not address to what extent it will be necessary to amend these for the existing workforce or whether the obligation will only arise if an existing employee requests a new statement or is issued with a new statement due to some other change in terms. Employers could also face demands for a higher contribution to an employee’s legal fees on a negotiated settlement given the greater extent of the required independent advice.

Anna Henderson
Anna Henderson
Professional Support Consultant, London
+44 20 7466 2819

UK: interim injunction prevents workplace culture disclosures to media

The appropriate use of confidentiality agreements in the employment context has come under a lot of scrutiny given the #MeToo campaign; a recent case illustrates how the courts may approach the issue of enforceability.

In Linklaters LLP v Mellish, Linklaters was granted a temporary injunction to restrain the defendant, its ex-global director of business development, from disclosing certain confidential information obtained from, and relating to, his employment, which Linklaters contended was confidential information relating to partners and/or employees of the firm and protected by express duties of confidence owed to it by the defendant, pursuant to his contract of employment. (Linklaters did not seek to restrain the defendant from publicising in general terms his ‘impressions of the current culture at Linklaters’.)

Following the termination of his employment, the defendant had indicated that he would give interviews concerning the ‘current culture’ at Linklaters in respect of women in the workplace, as demonstrated by three specific incidents. The Queen’s Bench Division held that there was clear evidence of a threat or intention to give interviews for publication about matters that had come to the defendant’s attention in the course of his employment, that the likelihood that Linklaters would succeed at a trial was sufficient to justify injunctive relief and that the rights of the third parties involved (in particular, employees and ex-employees who had raised grievances with an expectation of confidentiality) bolstered the case in favour of granting an injunction.

The right approach for the court to take, when faced with a contest between public interest considerations and a contractual duty of confidence, was to ask itself not just whether the information was matter of public interest, but whether, in all the circumstances, it was in the public interest that the duty of confidence should be breached. While there may be a legitimate public interest in firms performing their moral and social duties to their staff, this did not override the legitimate interest in maintaining confidentiality. There might be cases in which the details of individual acts of alleged or establish misconduct, combined with one another, created a compelling picture of persistent or habitual wrongdoing, serious enough to satisfy the relevant tests. In some cases, the public interest in correcting misleading public statements could come into the picture. However, there was no such evidence in this case.

Anna Henderson
Anna Henderson
Professional Support Consultant, London
+44 20 7466 2819

UK: Government response to sexual harassment report: New statutory Code of Practice and more consultation

The Government has today published its response to the Women and Equalities Select Committee report published in July of this year (see our blog post here) on sexual harassment at work.  It has noted the lack of data and research on this issue, as highlighted by the Committee, and therefore, for the most part, its response is to consult and collect more data in order to identify the most effective interventions.  However, it has agreed with the Committee that a new statutory Code of Practice should be introduced, to be developed by the Equalities and Human Rights Commission (EHRC).

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UK: employers should update template termination agreements in light of April tax changes and developments on NDAs

The tax treatment of payments for termination of employment has changed for terminations taking place on or after 6 April (see our earlier blog post here). The effect of the changes is to fully tax as earnings such part of a termination payment as is deemed to be in respect of unworked notice (the post-employment notice pay or “PENP”); the balance can then benefit from the £30,000 tax exemption. PENP is calculated using ‘basic pay’, which includes pay that would have been received had it not been salary sacrificed, but excludes overtime pay, bonuses, commission, allowances, benefits in kind etc. HMRC has now updated its Employment Income Manual to confirm that the calculation must be done even where the employment is terminated without notice by making a contractual payment in lieu; in the rare cases where the statutory PENP exceeds the contractual payment, the excess will be fully taxed. Although not expressly covered by the Manual, the HMRC may well take the view that the PENP calculation should also be applied in cases where compensation is paid following termination without notice for alleged gross misconduct or constructive dismissal.

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UK: jurisdiction clause in settlement agreement did not prevent proceedings where employee domiciled

The Commercial Court has ruled that a Dutch jurisdiction clause in a settlement agreement waiving claims on termination did not prevent an employer suing the employee in the member state in which he was domiciled (England) in respect of alleged breaches of the employment contract discovered subsequently and for annulment of the settlement agreement (if it was held to bar the damages claim) on the grounds of fraud or mistake.

Such jurisdiction agreements are only effective to oust the jurisdiction of the employee’s domicile if they are entered into after the relevant dispute has arisen.  In the first decision on this point, the Commercial Court ruled that a dispute will have arisen at a particular time only if the parties have disagreed on a specific point and legal proceedings in relation to that point are imminent or contemplated.  There is no “dispute” just because the parties are aware of circumstances which could potentially give rise to a claim.    (Yukos International UK BV v Merinson)

UK: Acas guidance on protected settlement discussions

Acas has published a non-statutory Guide to accompany the statutory Code on the new settlement discussion regime which came into effect on 29 July 2013.  The new regime provides a degree of protection for discussions about possible termination of employment even where there is no “dispute” (such that without prejudice protection does not apply).    Evidence of settlement discussions will not be admitted in an ordinary unfair dismissal claim, unless there is improper behaviour in which case the tribunal has a discretion to admit the evidence.

The Guide discusses how employers should make a settlement offer as well as the scope of the new protection and, in particular, what conduct amounts to “improper behaviour”. The Code sets out a non-exhaustive list of improper behaviour including criminal behaviour, various types of discrimination, and “putting undue pressure on a party”; the examples given of the latter are: Continue reading

UK: Employers should update their precedent compromise agreements with effect from 29 July 2013

On 29 July 2013 statutory compromise agreements needed to waive statutory employment claims will be renamed "settlement agreements", under s.23 of the Enterprise and Regulatory Reform Act. 

Most of the relevant legislation setting out the conditions for such agreements is amended from that date and will require an agreement to state on its face that the conditions regulating "settlement agreements" under the relevant legislation are satisfied. 

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UK: Termination – final version of Acas Code on settlement agreement discussions

ACAS has published its response to consultation on a statutory Code of Practice on settlement agreements, and in particular on the new provision for employers to have "protected settlement discussions" introduced by the Enterprise and Regulatory Reform Act and planned to come into effect this summer. This will enable employers to hold termination settlement discussions prior to starting a disciplinary or performance management process without the risk of the discussion being referred to in an ordinary unfair dismissal claim, unless there has been “improper conduct”. Continue reading

UK: Consultations on Acas Codes: settlement discussions and flexible work requests

Acas has published an initial draft Code on settlement discussions, for consultation until 9 April 2013.  This relates to the provisions in the Enterprise and Regulatory Reform Bill to enable employers to hold termination settlement discussions prior to starting a disciplinary or performance management process without the risk of the discussion being referred to in an ordinary unfair dismissal claim, unless there has been "improper conduct".  These are expected to come into force in summer 2013.

The key part of the draft Code focuses on what is meant by improper behaviour, which Acas suggests includes discriminatory or unlawful conduct and "putting undue pressure on a party".  Examples of undue pressure are given, including an employer allowing less than seven days to consider the offer or reducing the value of the offer within this time, an employer threatening dismissal if the offer is rejected, or an employee threatening to undermine the employer's public reputation.  Acas is seeking views whether these examples are appropriate and whether other examples of improper and acceptable behaviour should be included. 

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