The Government has published a consultation on proposed measures to prevent the misuse of confidentiality clauses in connection with workplace harassment or discrimination.  The consultation proposes a number of changes to how such clauses are used in employment contracts and settlement agreements in England, Wales and Scotland.  The consultation closes on 29 April 2019.

What's the background?

In February 2018, the Women and Equalities Select Committee (WEC) opened an inquiry into sexual harassment in the workplace.  It went on to publish a report, setting out its recommendations for legislative reform. The report called for reforms to be made in the use of confidentiality clauses (also known as non-disclosure agreements) to ensure that they are not used unethically in cases where sexual harassment is alleged.  This followed evidence that some employers had used such clauses to suggest that victims of harassment were prevented from making a disclosure about their treatment.

The WEC recommended that:

• Standard, statutory confidentiality wording be introduced setting out the meaning, effect and limits of confidentiality clauses.
• The definition of "protected disclosures" (i.e. whistleblowing disclosures) should be widened to include disclosures of sexual harassment to the police, all regulators and to any court or tribunal.
• Employers (and/or their professional advisers) should be prohibited from trying to prevent or limit an employee from blowing the whistle or reporting a criminal offence. 
• Lawyers should be disciplined if they advise on the use of provisions that can reasonably be regarded as potentially unenforceable.

In December 2018, the Government responded to the WEC's report and agreed that better regulation was needed and committed to publicly consult on this area. The consultation paper has now been published and is discussed further below.

However, it's worth remembering that on 12 March 2018 - before the WEC had published their report - the Solicitors Regulatory Authority (SRA) issued a "Warning Notice" warning solicitors on the use of confidentiality clauses in settlement agreements as a means of preventing the reporting of sexual harassment allegations (or, indeed, other forms of unlawful conduct).  Failure to comply with the Warning Notice by solicitors is treated as a breach of the SRA Principles and could result in disciplinary action. The Warning Notice provides that such clauses are used improperly where they are used as a means of preventing, or seeking to impede or deter, a person from:

• Reporting misconduct, or a serious breach of regulatory requirements, to the SRA or any other regulator.
• Making a whistleblowing disclosure
• Reporting an offence to the police.
• Co-operating with a criminal investigation or prosecution.

In January 2019, the Law Society supplemented this with a practice note governing good practice in the use of confidentiality clauses in settlement agreements.

What is the new consultation about?

On 4 March 2019, the Department for Business, Energy and Industrial Strategy published a consultation on new measures to prevent the misuse of confidentiality clauses in situations of workplace harassment or discrimination (the Consultation). These measures would supplement the existing rules which prevent employers from gagging whistleblowing disclosures.

The Consultation is quick to point out that confidentiality clauses have a right and proper place in the employment context – both in employment contracts for the protection of trade secrets and confidential information and in settlement agreements to allow parties to an employment dispute to move on. However, its purpose is to seek views on what reasonable limitations might be put on confidentiality clauses to ensure they are not misused in cases of harassment and discrimination. 

Contracts of employment

First, it proposes a new requirement for the employer to clarify the nature of confidentiality provisions in the statement of employment particulars provided to the employee under section 1 of the Employment Rights Act 1996 (ERA 1996). This would require the employer to outline the extent and limit of the obligations on the employee. If the employer failed to include appropriate wording, then this would not have the effect of voiding the confidentiality clause altogether (which could leave the company at risk of exposure of its trade secrets and related confidential information).  However, the employee would be able to complain to an Employment Tribunal about the failure and seek compensation.

Second, it proposes that legislation be introduced which prevents an employer from seeking to gag an employee from making any kind of disclosure to the police (i.e. including disclosures which do not qualify as whistleblowing disclosures under the ERA 1996). The Consultation also asks whether this restriction should apply to groups other than the police, although it is noted that the Government is wary of making the list too broad.

Settlement agreements

First it proposes that in order for a settlement agreement to be valid, the employee must receive independent advice on the nature and limitations of the confidentiality clause and the types of disclosures which are still permitted. If this proposal is taken forward it will necessitate changes to settlement agreement templates to spell out that this has been done (e.g. in the warranties given by the employee as to the advice they have received and also in the Advisor's certificate confirming the advice they have given). 

Second, as for employment contracts, it proposes that employers should be prevented from seeking to gag an employee from making any kind of disclosure to the police (and, again, the Consultation also asks whether this restriction should apply to other groups). Template settlement agreements that have been revised in line with the SRA Warning Notice's requirements will already be very close to complying with this proposal.  The Warning Notice provides that confidentiality clauses must not prohibit the reporting of an "offence" to the police and/or co-operation with a "police investigation or prosecution". On the face of it, the Consultation proposal appears to go further in that it protects "any kind of disclosure" which could, in theory, extend beyond disclosures of an offence and/or made as part of an investigation or prosecution.

Thirdly, it is proposed that if a confidentiality provision is non-compliant then the whole clause will be void. This would mean that if the employee went on to contravene a confidentiality clause this would not represent a breach of the agreement. In turn, this would mean that any claw back provision triggered by a breach of the agreement would not bite and nor would the employer have grounds to sue for breach of contract.

Comment and next steps

The Government rejected the WEC's call for standard, statutory confidentiality wording on the grounds that it would be too restrictive and could date quickly. However, they have sought to meet the WEC halfway by requiring greater clarity on the meaning of confidentiality clauses in contracts and settlements. Given the steps already taken by the SRA and Law Society, the Consultation does not propose any measures regarding the disciplining of lawyers who advise on using potentially unenforceable provisions.

If taken forwards, the proposed changes will necessitate some relatively minor changes to the drafting of employment contracts and settlement agreements. Employers should monitor this development and be prepared to adjust any template documents at the relevant time.

The Consultation closes on 29 April 2019.  Employers wishing to respond can do so online or by email to ndaconsultation@beis.gov.uk. The Consultation contains specific questions for respondents, but additional comments and evidence are also welcomed.

Consultation on Confidentiality Clauses