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 The Government does not feel that a prescribed form of wording is helpful, as it could quickly become out of date, but suggests legislation that requires confidentiality clauses to make clear that they cannot prevent whistleblowing disclosures, reporting of criminal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.