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Will attempts to crack down on “gagging” clauses and NDAs work?

Following the #metoo scandal and the discovery of the repeated use of non-disclosure agreements (NDAs) by Arcadia as a result of racial and sexual harassment allegations against Phillip Green by former employees, some kind of Government intervention into the use of these agreements was anticipated. This has come in the form of a consultation on whether the law can be tightened up, with proposals to prevent employers from using so called “gagging” clauses to stop staff reporting criminal behaviour, harassment or discrimination to the police.

However, in practice, any change along these lines will be negligible.

An NDA seeking to prevent an individual from reporting an offence to the police would likely be held unenforceable by a court. Usually either as a ‘whistleblowing’ disclosure under the Public Interest Disclosure Act, or generally the public interest outweighing confidentiality – and so, in reality, the vast majority of NDAs do not include such a clause. The issue is instead that parties are often unaware of this.

The government has also proposed to extend the law to ensure the employee agreeing to the agreement receives independent legal advice on the implications. In practice though independent legal advice is usually provided to the employee (and often funded by the organisation) as without this the enforceability of the agreement could be called into question.

How it works in practice

It is the right time for the Government to consult on the role NDAs and confidentiality clauses play in an employment context but the proposals need to go further and wider to create any significant change. There are plenty of circumstances where these agreements are the best option for both parties, and confidentiality is vital to the proper conduct of business – indeed the courts recognise there is a significant public interest in protecting contractual confidentiality.

Our experience though is that most reputational problems have come about where NDAs have been used to allow a pattern of behaviour or a culture to continue within a business, rather than actually taking steps to address the problem a business has in order to promote positive change. Whether any legislative change happens or not, for businesses signing up to NDAs they fundamentally need to consider whether they are applying a sticking plaster while allowing the reputation risk to increase. NDAs are a fix, but not a solution – as recent publicity only proves.

If your business is considering executing non-disclosure agreements, or has historic agreements it is concerned about, please get in touch with Jess Lovell or your usual Himsworth Scott contact for more details on assessing the risks.