Introduction
As every reader will know, the use of confidentiality or non-disclosure agreements (“NDAs”) has been under scrutiny since the allegations of sexual harassment against Harvey Weinstein and the subsequent #MeToo movement. More recently, the allegations by Virginia Giuffre against Prince Andrew have kept the topic in the public eye, especially as the interpretation of an NDA agreed in 2009 between Ms Giuffre and Jeffrey Epstein was relevant to the legal proceedings brought by her against Prince Andrew.
NDAs seek to prevent parties to the agreement from disclosing information which one or both of them consider sensitive, in return for a payment or other valuable benefit. This may be the entirety of the bargain between the parties, or just part of a wider settlement of a dispute. Often, the confidentiality obligation is imposed by the more powerful, wealthier or more high-profile party, who or which has more to lose if the background to the matter was aired in public (eg damage to their business interests or public image).
There are legitimate reasons why parties might wish to keep a matter confidential, especially in the current era of instant trial by social media. However, the #MeToo movement gave rise to serious concerns that confidentiality obligations were being used improperly to cloak allegations of sexual misconduct. This raises various tricky issues.
Instructing solicitors
In November 2020, the Solicitors Regulation Authority (“SRA”) updated a warning notice first published in March 2018.
In summary, the SRA considers that NDAs would be used improperly if a regulated firm or individual sought to:
- Use an NDA as a means of preventing, impeding or deterring a person from:
- Co-operating with a criminal investigation or prosecution
- Reporting an offence to a law enforcement agency
- Reporting misconduct, or a serious breach of regulatory requirements to an appropriate regulatory body
- Making a protected disclosure under the Public Interest Disclosure Act 1998 (read on for more detail on protected disclosures)
- Use an NDA to influence the substance of such a report, disclosure or co-operation.
- Use an NDA to prevent any disclosure required by law.
- Use an NDA to prevent proper disclosure about the agreement or circumstances surrounding the agreement to professional advisers, such as legal or tax advisors and/or medical professionals and counsellors, who are bound by a duty of confidentiality.
- Use an NDA as a means to secure agreement from clauses known to be unenforceable.
- Use warranties, indemnities and clawback clauses in a way which is designed to, or has the effect of, improperly preventing or inhibiting permitted reporting or disclosures being made (for example, asking a person to warrant that they are not aware of any reason why they would make a permitted disclosure, in circumstances where a breach of warranty would activate a clawback clause).
From a solicitor’s perspective, it is important that care is taken when drafting confidentiality clauses so that they cannot be interpreted as above conflicting with the principles set out by the SRA. Failure to do so could lead to disciplinary sanctions from the SRA, adverse publicity for the firm and the relevant client, and even claims against the law firm by the party who was subjected to the improper confidentiality obligation.
Equally, clients or would-be clients of solicitors should be aware that their solicitor cannot (or, at least, should not) attempt to bury any inconvenient allegations by means of an exhaustive confidentiality clause.
Problems with enforceability
There are legal and practical constraints that limit the effectiveness of confidentiality obligations.
Whistle-blower protection
Any provision in any contract is void in so far as it purports to preclude a worker from making a “protected disclosure”. In summary, a worker will either be an employee or an individual who provides a personal service and who is not genuinely self-employed.
A disclosure might qualify in principle for protection if in the reasonable belief of the worker it tends to show that any number of different forms of malpractice (eg a criminal offence, or a breach of any other legal obligation) has taken place, is taking place or is likely to take place. A worker must also reasonably believe that the disclosure is in the public interest, albeit the courts have set a low threshold for what constitutes “public interest” such that disclosures which mostly concern the worker’s individual circumstances might still attract protection.
Lastly, to be covered under the regime, any disclosure must be made to one or more of a specific list of persons or entities, with additional conditions applying to disclosures made to persons other than the employer. In broad terms, the aim of the regime is to encourage workers to make disclosures first to their employer, or if not, to an appropriate regulator next, before a disclosure is made to others.
Relying on a confidentiality obligation
A confidentiality obligation is not sacrosanct; the UK courts have long recognised that in some circumstances public policy or interest must override a duty of confidentiality. In particular, there is a long-standing principle that no confidentiality can attach to an “iniquity”.
Typically, a party seeking to enforce a confidentiality obligation against the other party or a third party would need to apply to courts for an injunction. Courts have a discretion as to whether or not to grant an injunction, and amongst other factors will consider the propriety of the underlying confidentiality obligation. The Court of Appeal decision in the Telegraph litigation (ABC & Ors V Telegraph Media Group Ltd [2018] EWCA Civ 2329) is a good example. In this case, five employees had made allegations of discreditable conduct by a senior executive in their organisation. All of the complaints were settled before any details of the claims went on the public record, and the complainants received substantial payments and were subject to confidentiality obligations. Some of the allegations were then leaked to the Telegraph, which wished to publish a story about the allegations made.
The appellants in this case – two group companies and the senior executive – obtained an interim injunction from the Court of Appeal restraining the Telegraph from publishing details of the allegations. The Court of Appeal had to grapple with the issue of whether it was proportionate to override the duty of confidentiality in these circumstances. The Court of Appeal considered there was also a public benefit in the enforcement of contracts, which had been freely entered into by the parties and which settled their disputes, and that this was particularly relevant in the context of employment disputes.
The Court of Appeal also considered it relevant that:
- There was no evidence that the settlement agreements were procured by bullying, harassment or undue pressure by the appellants
- Each complainant had received independent legal advice prior to entering into the settlement agreements
- Each settlement agreement authorised disclosure to third parties in a range of circumstances, including to regulatory and statutory bodies
On the facts, the Court of Appeal concluded that, pending a full trial, the appellants had a good argument that the confidentiality obligations were legitimate. (Ultimately, a full injunction was not pursued as the identity of the senior executive concerned was revealed in Parliament.)
Practical problems
However, aside from the legal issues, parties to a dispute considering the use of a confidentiality obligation should bear in mind an inherent problem – this kind of obligation remains difficult to enforce in practice.
An injunction remains a discretionary remedy, and even applying for one is prohibitively expensive for many parties, such that only those with deep pockets or who consider the issues at stake to be critical would be attracted by this potential remedy. In theory, a party in breach of a confidentiality obligation could also be sued after the event for breach of contract, but it may be difficult for the other party to show it has incurred any quantifiable loss, and in any event an individual will often lack the financial means to pay any award of damages.
There may be scope for including a repayment provision in the confidentiality agreement, such that if an individual reneges on it they are required to repay as a debt the sum paid to them at the outset. However, the effectiveness of a repayment provision will also be influenced by the legitimacy of the confidentiality obligation. In practice, if it is important to tie an individual to a confidentiality obligation, the best strategy (if practical to do so) may be to make the payment offered in return for the non-disclosure in instalments, so that the individual has an incentive to continue to comply with the obligation over the period during which disclosure would be most damaging.
In any event, in the context of sexual misconduct allegations, it may be damaging from a public image perspective to pursue an individual for breach of a confidentiality allegation.
The future
In October 2019, in response to a consultation exercise on the misuse of NDAs, the government pledged to legislate on the future use of NDAs, to include new enforcement measures, and to produce accompanying guidance. The government has also stated it will introduce a duty requiring employers to take positive steps in the workplace to prevent sexual harassment and to protect employees from third-party harassment. As part of the government’s wider strategy to tackle violence against women and girls, it is stated that the Department for Education will review options to limit the use of NDAs in cases of sexual harassment within higher education.
No legislation or specific guidance has yet been proposed. However, it is clear that within our wider culture there is a far greater scepticism towards the use of NDAs in respect of allegations of sexual misconduct.
That said, it is unlikely that future legislative changes will end the use of NDAs. In our experience, many allegations are contested. Often the confidentiality obligation arises as part of a financial settlement, which is reached before any internal process or court of law has determined if the alleged harassment has occurred. In turn, there is often an attraction for both complainants and respondents in settling contested allegations early and before these are aired in public. Therefore, we expect confidentiality obligations to remain common practice for now, but those contemplating using them should be aware of their limitations.
Organisations will have to carefully balance the rights of those brave enough to speak up and those who contest the allegations in the context of the organisation’s own values and reputation. Further, organisations wishing to send a message about their values may increasingly need to consider if keeping the allegations confidential is in their best interests. Trying to gag individuals risks being seen as confirmation that the allegations are true or, perhaps worse, that the employer is prepared to protect those who harass staff by hushing up allegations of this type.