The spotlight on non-disclosure agreements – or confidentiality clauses, as they are commonly referred to – is showing no sign of diminishing. The Government published a consultation paper yesterday, taking forward its agreement in December 2018 to implement one of the recommendations made by the Women and Equalities Committee to better regulate the use of non-disclosure agreements.
With a proposal that non-compliance with the reforms will make future confidentiality clauses in settlement agreements void, this development potentially raises the stakes for employers who routinely include confidentiality provisions in settlement agreements entered into on the termination of an employee’s employment. The proposals also impact on contracts of employment. Employers should therefore monitor progress of the proposed reforms carefully.
The consultation looks at 2 distinct uses of confidentiality clauses – (1) Contracts of employment (2) Settlement agreements.
Contracts of employment
Acknowledging that, as part of employment contracts, confidentiality clauses have an important role to play in protecting trade secrets and other confidential information, the Government proposes:
- To legislate to the effect that no provision in a contract of employment can prevent someone from making any kind of disclosure to the police;
- That there be a requirement to be clear, in the written statement of particulars that must be given to all employees, about the limits of any confidentiality clauses;
- The enforcement mechanism will be through the existing mechanism relating to the requirement for employees to be given a written statement of employment particulars – i.e if an individual brings a complaint to a tribunal (eg of discrimination) and the employer is found to have failed to comply with the requirement to provide a written statement setting out the limits of any confidentiality clause, increased compensation may be awarded;
- That there will not be standard, approved wording for employers to use in contracts of employment.
Against a background of evidence that a minority of employers are misusing confidentiality clauses, the Government proposes:
- To require that for a settlement agreement to be valid, the independent advice which an employee receives must cover the nature and limitations of any confidentiality clause and the disclosures the individual is still able to make;
- To legislate to the effect that no provision in a settlement agreement can prevent someone from making any kind of disclosure to the police;
- That there will not be standard, approved wording for employers to use in settlement agreements;
- That a confidentiality clause in a settlement agreement that does not meet the new wording requirements will be void in its entirety.
The consultation closes on 29 April 2019.
Whilst the outcome of the consultation process must now be awaited, employers should take the opportunity now to review the terms of any confidentiality clauses routinely used in contracts of employment and settlement agreements, and to consider how they may need to be revised going forward.