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Government Issues Consultation on Misuse of Confidentiality Clauses

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Background

In March 2019, the Government began a consultation on the possible introduction of new measures to prevent the misuse of confidentiality clauses, particularly in situations of workplace harassment or discrimination. The Women and Equalities Committee recommended introducing stricter limitations on the use of confidentiality clauses. The consultation tends to focus largely on clarifying existing limitations, although the proposals may still be of note for employers.

The Purpose of Confidentiality Clauses

In an employment context, confidentiality clauses are most commonly found in contracts of employment and settlement agreements.

Generally, employment contracts will contain confidentiality clauses seeking to prevent disclosure of confidential business information, trade secrets and so on. There are usually good reasons for this, such as protecting the customer base and operations of the business.

These clauses may also be contained or repeated in settlement agreements, which usually also provide separately that the employee will keep the terms of the settlement agreement and the circumstances leading up to it confidential, with some limited exceptions. In the case of a settlement agreement, such clauses may be included to ensure an amicable parting, as well as to protect the business when it is agreeing to enter into a financial settlement.

However, research, including that carried out by the Women and Equalities Committee, indicates that some employers may exploit their position of power by requiring victims of sexual harassment or discrimination into signing confidentiality clauses which prevent them from disclosing the allegations to anyone. These obligations may be set out in settlement agreements or separate non-disclosure agreements, which have been a common subject in the news recently in respect of the #metoo movement and allegations against a number of high profile individuals.

The Government is therefore considering whether confidentiality clauses in an employment context require improved regulation.

Existing Limitations

There are already some limitations on what a confidentiality clause can restrict. They cannot prevent a person making allegations of discrimination or other breaches of their statutory employment rights in an employment tribunal unless they are contained in a valid settlement agreement.

Even in a settlement agreement, a confidentiality clause cannot restrict the employee from making a protected disclosure (or ‘whistleblowing’). However, the employee would have to ensure their disclosure properly fell within the scope of the relevant legislation, otherwise they may be in breach of the confidentiality clause. This includes ensuring their disclosure is in respect of an appropriate subject matter (such as disclosing the commission of a criminal offence) and is made to an appropriate person.

Proposals

The Government has made the following proposals in relation to confidentiality clauses:

Disclosures to Specific People

There is currently a prescribed list of bodies to whom an employee can properly make a protected disclosure and therefore be protected from any accusation of being in breach of a confidentiality clause. The Government has proposed enhancing this list, including making provision that settlement agreements and employment contracts cannot prevent disclosures of any kind to the police. It has also requested feedback on other organisations (if any) which might be added to this list.

Extent of Confidentiality Clauses

The Government has proposed a requirement that all confidentiality clauses must be drafted in a way which clarifies their extent and limitations, such as by setting out that they do not prevent the making of protected disclosures. This would include introducing a requirement to clarify the limits of any confidentiality clause included in contracts of employment. Such wording has already become more commonly used in settlement agreements. The proposal also suggests that a clause should be void if it doesn’t meet these requirements.
The Women and Equalities Committee called on the Government to require the use of standard wording for confidentiality clauses which clearly define the effect, meaning and limits of the clause, when used in either employment contracts or settlement agreements, but this approach has been rejected as it was felt flexibility is required to deal with different situations.

Advice on Settlement Agreements

For a settlement agreement to be valid, a worker must have obtained advice from an independent advisor (usually a solicitor) on the terms and effect of that agreement. The Government proposes to extend this requirement, to specify that the independent advisor must cover the nature and limitations of any confidentiality clause and the rights which that clause cannot waive. In practice, any prudent advisor will already cover this point, but introducing a requirement would tend to ensure all employees are specifically advised on this.

Comment

A common view taken is that the Government proposals do not go much beyond clarifying existing restrictions on confidentiality clauses rather than introducing new restrictions, and may not go particularly far in addressing issues around sexual harassment in particular.

For employers, the main point to be aware of is the proposed requirement to detail the limitations of confidentiality clauses, as it is currently fairly unusual for employment contracts to specify such restrictions. It is also important to be aware of these restrictions. If employers do not address these matters properly (in the event the proposed changes to the law are made) it may mean there is no protection to a business against an employee or ex-employee making damaging allegations public, without there being any form of recourse available.

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