Employment non-disclosure agreements: what employers need to know

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The use of non disclosure agreements, or confidentiality clauses as they are also commonly known, can be both a highly complex and highly sensitive topic, not least where allegations of misuse as a means of covering up workplace harassment and unlawful discrimination have been rife in the media.

Moreover, the government has proposed legislation to address the potential misuse of NDAs in the workplace.

We look at what employers need to consider when using NDAs in the workplace.

What are non disclosure agreements?

A non disclosure agreement (NDA) in an employment context is a legal contract, or contractual provision, that an employee can be asked to sign prior to starting a new job, or even prior to undertaking a particular project at work, so as to prevent any commercially sensitive and confidential information from being made public. In other words, an NDA is designed to prohibit the disclosure of certain information to third parties.

Typically, these types of agreements are used to protect intellectual property and other confidential business information that employees may have access to during the course of their work, and to prevent employees from sharing this information with competitors. That said, confidentiality clauses are also often used to protect an employer’s reputation, preventing employees from leaking information to the press, online or otherwise.

In particular, an NDA will often be incorporated into a settlement agreement, allowing the employer and employee to confidentially bring an employment relationship to an end on mutually agreeable terms, or to privately resolve a workplace dispute, without recourse to legal proceedings.

When can non disclosure agreements be used?

As set out above, a non disclosure agreement will usually be used either to protect commercially sensitive information or to keep confidential the existence of and terms upon which a settlement agreement is reached, not least the amount of compensation paid to terminate an employee’s contract of employment or to settle a workplace dispute, as well as the circumstances surrounding an employee leaving their job or what gave rise to any dispute.

However, an NDA cannot be used to lawfully restrict an employee from talking to the police or a regulator about issues between their employer or someone at work. In other words, non disclosure agreements cannot legally be used to prevent an individual from reporting any wrongdoing in the workplace, otherwise known as whistleblowing.

In these circumstances, namely, where an agreement attempts to silence a whistleblower, a non disclosure agreement will not be legally binding.

Further, specifically in the context of settlement agreements, an NDA is unlikely to be legally binding where undue pressure is placed on the employee to sign, for example, where s/he is not given reasonable time to consider the agreement and/or to obtain independent legal advice as to the consequences of signing.

What constitutes a reasonable period of time will depend on the circumstances of the case. Generally speaking, however, you should allow a minimum of ten calendar days for an employee to consider the terms and to take legal advice.

What should non disclosure agreements contain?

When drafting a non disclosure agreement, the content of this agreement will very much depend upon the nature of the information the agreement is intended to cover and the context in which the agreement has arisen.

In particular, there are specific requirements that must be met when drafting a settlement agreement to terminate an employee’s contract of employment or to settle any claims arising out of the employment relationship. These are dealt with separately below under settlement agreements.

In broad terms, however, when including an NDA within a contract of employment, or to protect commercially sensitive information in relation to a specific project at work, the key elements of the agreement should include the following, although this list is by no means exhaustive:

  • The parties concerned – the agreement must identify the parties it is intended to cover, typically the employee and the employer’s company or organisation.
  • A definition of what is deemed to be confidential – the agreement must clearly define the specific nature of the confidential information to be protected, for example, client names and contact details.
  • Any exclusions from confidential treatment – the agreement must set out those matters not covered by the confidentiality obligation, for example, information already in the public domain or otherwise known to the employee, including information independently disclosed to the employee by another party who is not bound by the agreement.
  • The scope of the confidentiality obligation – the agreement must set out the extent of the obligation not to reveal any confidential information. This will typically comprise a two-part obligation on the employee, namely, to keep the information confidential and not to use the information themselves.
  • Any ancillary matters – the agreement should also include who the employee is permitted to discuss the matter with, such as family members or legal and medical professionals, as well as any time limits on the confidentiality obligation.

What should settlement agreements contain?

When including a confidentiality clause, or NDA, within the terms of any settlement agreement, this is a matter to be agreed voluntarily between the parties during the course of any settlement discussions.

Typically, this will include provision whereby both parties agree to keep the agreement itself confidential and not disclose its details to third parties, although the agreement must be clear as to whether this also covers the circumstances of the employee leaving their employment and/or the nature of any dispute, or just the fact that a settlement agreement has been offered and the terms within it.

The settlement agreement can also specify that an employee will continue to be bound by confidentiality clauses that are already included in the terms and conditions of their employment contract.

However, confidentiality clauses should only be used when necessary and should not be included in settlement agreements as a matter of course. Further, they should never seek to prevent an individual from being able to make a protected disclosure of matters of public interest under whistleblowing legislation, nor should the wording of any clause seek to discourage the individual from raising concerns about wrongdoing, poor practice or unlawful conduct in the workplace.

Further, to be legally valid and enforceable in waiving an individual’s right to bring a complaint before an employment tribunal or other court, any settlement agreement must comply with certain conditions, namely:

  • The agreement must be in writing
  • The agreement must relate to, and specifically state, the nature of the particular complaint or proceedings that it is intended to cover
  • The employee must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement, including its effect on their ability to pursue a complaint or proceedings before a tribunal or other court
  • The independent adviser must have a current contract of insurance or professional indemnity insurance covering the risk of a claim by the employee in respect of loss arising from that advice
  • The agreement must identify the adviser, who must not be employed by, acting for, or connected with the employer’s organisation
  • The agreement must state that the statutory provisions that set out the above conditions regulating the validity of the settlement agreement have been satisfied.

What are the proposals for NDA reform?

Notwithstanding the government proposals for regulatory reform and the recent controversy over misuse of NDAs, the use of non disclosure agreements remain a useful and legitimate option to protect commercially sensitive information and an employer’s reputation, both when signed as part of an employment contract and in the use of settlement agreements.

However, given the potential scope for misuse, including the risk of any allegations of misuse, it is vital when using a non disclosure agreement to seek expert legal advice from a specialist in employment law, not least to ensure that the agreement is being used within a lawful context, and is otherwise legally binding on the employee.

In this way, you can feel confident that the information you are seeking to protect, either in relation to sensitive or confidential information about your business, or in relation to terminating an employee’s contract of employment or resolving a workplace dispute, will not be disclosed at a later date because the courts or tribunal have deemed the NDA legally unenforceable.

It is also in the interests of any employer looking to use a confidentiality clause within a settlement agreement to ensure that any employee signing an NDA fully understands what they are agreeing to and does not feel coerced in any way. As such, consideration should always be given to making a financial contribution towards the cost of an individual seeking legal advice in this context.

DavidsonMorris are employer solutions lawyers, providing strategic consultancy and managed services that ensure businesses and HR practices are both fully compliant with legal requirements and effective in meeting people-led business objectives.

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