UK: Commons Select Committee publish report recommending further restrictions on use of NDAs

The House of Commons Women and Equalities Committee has today published its report following its inquiry into the use of non-disclosure agreements (NDAs) in discrimination cases.  This follows its report on sexual harassment, to which the Government  responded in December 2018 announcing consultation on its own proposals to regulate NDAs (see here);  the latest report takes issue with the Government's failure to accept some of the Committee's previous recommendations.  The report identifies as key concerns that some employers are using NDAs to avoid investigating unlawful discrimination and harassment complaints and holding perpetrators to account.  Further, given the imbalance of power, individuals feel forced to accept NDAs, often to the detriment of their health and wellbeing, in some cases in order to secure a reference and to avoid the risk of blacklisting by future employers.

The use and drafting of NDAs in settlement agreements

The headline news as reported in the media is that MPs are calling for a ban;  the actual report is a little more nuanced. The main recommendation is that the Government should "legislate to ensure that NDAs cannot be used to prevent legitimate discussion of allegations of unlawful discrimination or harassment, and in the public interest consider how to stop their use to cover up allegations of unlawful discrimination, while still protecting the rights of victims to be able to make the choice to move on with their lives."  Reading between the lines, it may be that the Committee would have liked to recommend a ban to deal with the current "cover-up culture" but also recognised the risk that this would significantly increase the likelihood of employers refusing to settle, potentially impeding alleged victims' ability to "move on with their lives";  they have therefore put the ball back in the Government's court to consider how to balance these conflicting interests.  The need to stop the use of NDAs to cover up allegations of unlawful discrimination is described as the necessary "direction of travel".

So the immediate focus of the recommendations is on the restrictions or carve-outs that should be made from NDAs, "to reset the parameters within which NDAs can be used when there are allegations of unlawful discrimination". The report suggests that "legitimate purposes" for which disclosure should be permitted include discussing potential claims with other alleged victims, or supporting such victims through the trauma of raising a complaint of discrimination and harassment.  Individuals should also be able to decide whether to tell a third party or a new employer why they left a previous employment if the case involved allegations of unlawful discrimination.

The report states that the Government should legislate, within the next two years, to ensure that any clause in a settlement agreement that has the effect of controlling what information an individual can share with other people, organisations or bodies should:

• be clear and specific about what information cannot be shared and with whom;
• contain agreements about acceptable forms of wording that the signatory can use, for example in job interviews or to respond to queries by colleagues, family and friends;
• contain clear, plain English explanations of the effect of clauses and their limits, for example in relation to whistleblowing.

Guidance on suitable forms of wording should be provided, to ensure that they are clear and specific.

Standard clauses on the damages that can be reclaimed for the breach of confidentiality, non-derogatory and similar clauses ('clawback clauses') should also be included. Non-standard clauses of this type should be legally unenforceable unless the relevant party can show a clear need for alternative clauses. This reasoning should be provided with the draft agreement to enable those giving legal advice on the effect of such clauses to advise on their propriety.

The Government should also require employers to make a financial contribution sufficient to cover the costs of the worker’s legal advice on any settlement agreement proposed by the employer. This advice should cover, as a minimum, the content and effect of any confidentiality, non-derogatory or similar clauses, and any concerns about the reasonableness or enforceability of those clauses. Where the worker wishes to negotiate the terms of those clauses, further contributions should also be payable by the employer to cover the costs of legal advice and representation for those negotiations. These contributions should be payable regardless of whether the employee signs the agreement.

The Committee also expressed concerns about the inclusion of warranty clauses which require the signatory to warrant, for example, that they know of no reason why they would make a complaint to the police or another enforcement body, although the report then elides these with "warranty clauses" that require repayment of settlement sums should the individual exercise their whistleblowing rights (more commonly described as "clawback clauses") which might amount to a perversion of the course of justice.  It is therefore unclear whether the former type of clause is actually considered unacceptable;  arguably it could be included for legitimate reasons, because an employer wants to know of any concerns so it can investigate them.

Other employer obligations

The Committee recommended that the Government:

• require employers to investigate all discrimination and harassment complaints regardless of whether a settlement is reached.  Guidance for employers should be published within six months, and should include how to handle investigations if a settlement agreement is agreed before any investigation is completed.
• require employers to provide, as a minimum, a basic reference for any former employee confirming as a minimum that they worked for that employer and the dates of their employment.  This should be done within the next year.
• (as previously recommended and rejected by the Government) place a mandatory duty on employers to protect workers from harassment and victimisation in the workplace. Breach of the duty should be an unlawful act enforceable by the Equalities and Human Rights Commission and carry substantial financial penalties. Consideration should also be given to whether the duty should be widened to cover any form of unlawful discrimination or harassment.
• (as recommended in the Committee's recent report on pregnancy/maternity discrimination) require employers to report on maternity retention rates
• consider requiring employers to collect data and report annually on: (i) the number and type of discrimination and harassment complaints/grievances and the outcome of such complaints, (ii) the number of settlement agreements containing confidentiality, non-derogatory and similar clauses they have agreed, and the type of dispute they relate to.

Corporate governance and reporting to board level

The Committee considered that the boards of public and private companies need to take greater responsibility in this area and recommended that the Government:

• strengthen corporate governance requirements to require employers to meet their responsibilities to protect those they employ from discrimination and harassment, including by ensuring that there are appropriate sanctions for poor practice

• require companies to nominate a director to hold responsibility for

• overseeing the use of NDAs and ensuring that where they are used in settling discrimination and harassment cases, their use is appropriate;
• reviewing settlement sums and monitoring whether these are an appropriate use of company resources;
• overseeing anti-discrimination and harassment policies, procedure and training, including learning lessons from how previous such cases were handled.

These roles should not be seen as the responsibility of an HR or support function but should be given to a manager with responsibility for a business function within the organisation.

The SRA should consider drafting guidance for lawyers on reporting up within their own firm and their client organisations, including on how to balance this with their other professional obligations. EHRC, Acas and other guidance and codes of practice on the use of NDAs in discrimination and harassment cases should highlight the responsibilities of HR professionals and line managers to report such concerns to senior managers and board members.

Tribunal claims

As previously recommended, tribunal time limits should be extended to six months in cases where sexual harassment, or pregnancy or maternity discrimination, is alleged, and the time limit in all discrimination cases should be reviewed.

There should be an equalities review of the employment tribunal system, to cover consideration of those deterred from bringing a claim (including due to the risk of blacklisting as a result of the online publication of tribunal judgments).  Access to legal aid and support for litigants in person should also be reviewed.

Within the next two years the Government should improve the remedies that can be awarded by employment tribunals as well as the costs regime to reduce disincentives to taking a case forward:

• tribunals should be able to award punitive damages (a recommendation previously rejected by the Government).
• one-way costs shifting should be introduced, ie, there should be a presumption that tribunals will normally require employers to pay employees’ costs if the employer loses a discrimination case in which sexual harassment has been alleged (no reason is given why this should be limited to sexual harassment, as opposed to all discrimination, cases; this may be an unintentional error).  Again, this idea has already been rejected by the Government in its response to the earlier report.
• guidance for tribunal judges and litigants should set out the circumstances in which a refusal to settle a claim may be considered “unreasonable behaviour” leading to potential costs orders, and should make clear that refusal to agree to an NDA should never, in itself, be deemed unreasonable behaviour.
• the bands in the Vento guidelines for awards for injury to feelings and psychiatric injury awards should be increased significantly to take into account the non-financial impact of discrimination.

Criminal/professional disciplinary offence

The Committee also renewed its previous calls for the Government to make it an offence for an employer or their professional adviser to propose a confidentiality clause designed or intended to prevent or limit the making of a protected disclosure or disclosure of a criminal offence.  It called for further guidance from the CPS on the type of cases in which it might be appropriate to prosecute.

The use of provisions in confidentiality agreements that can reasonably be regarded as potentially unenforceable should also be clearly understood to be a professional disciplinary offence for lawyers advising on such agreements.

Whistleblowing legislation

The Committee noted considerable concern about the complexity of whistleblowing law and the lack of clarity about when the public interest test would be met in workplace discrimination cases.  It therefore recommends that the Government review how best to simplify and clarify existing whistleblowing legislation; how whistleblowing law interacts with other relevant legislation such as the Equality Act; and whether the public interest test is workable.

Next steps

The Government's response to the consultation on its proposals on NDAs (which closed on 29 April 2019) and its reaction to this latest report will be awaited with interest.  In the meantime, although the legal position is unchanged by this report, employers may face a growing resistance from individuals to agree an NDA clause without the carve-outs suggested by the Committee.

The report also notes that the EHRC's code of practice on sexual harassment and harassment at work, which the Government asked it to draft in its response to the sexual harassment report, is expected in July.  This will specify the steps that employers should take to prevent and respond to sexual harassment and will also include guidance on the use of NDAs in such cases.