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Confidentiality Clauses in Settlement Agreements

Confidentiality clauses in settlement agreements have become for all intents and purposes a standard term of such agreements. Nevertheless, such clauses are not always enforceable. Moreover, the recent football sexual abuse scandal and the current debate over sexual harassment in the workplace, have led to confidentiality clauses being dubbed “gagging clauses”.

Confidentiality Clauses in Settlement Agreements

Confidentiality clauses are included within settlement agreements in order to keep the terms of the settlement private, including the amount of compensation paid and the circumstances leading up to the termination of the employment contract. Hence, it is standard practice to prohibit the employee from disclosing any details about the settlement agreement and its terms to anybody, except for their legal adviser, their immediate family, and those organisations where there is an obligation to do so (e.g. the HMRC).

The Controversy Surrounding Confidentiality Clauses

There has been a considerable amount of public scrutiny about confidentiality clauses in settlement agreements which have either sought to, or have been perceived to have sought to, prevent employees from disclosing information which is in the public interest, such as criminal activity or other wrongdoing. Examples include the Mid Staffordshire NHS Foundation Trust scandal, the football sexual abuse scandal, and the recent debate over sexual harassment in the workplace. Following the Mid-Staffordshire scandal, the Department of Health stated: “The government has taken a series of steps to encourage an open dialogue, including changing the NHS constitution to enshrine the fact that NHS organisations should support staff who raise concerns, ensure those concerns are fully investigated and ensure that there is someone independent, outside of their team, to speak to. That change also set out a legal right for staff to raise concerns about safety, malpractice or other wrongdoing without suffering any detriment. We have consistently made clear to the NHS that local policies should prohibit the inclusion of confidentiality gagging clauses in contracts of employment and compromise agreements which seek to prevent the disclosure of information which is in the public interest. Sir David Nicholson, head of the NHS commissioning board, has also written to NHS organisations reminding them of their responsibilities in relation to compromise agreements. As we made clear……., the culture in the NHS needs to change and high-quality patient care must be paramount.”

The Enforceability of Confidentiality Clauses in Settlement Agreements

Drafted properly, confidentiality clauses are usually mutually beneficial for both employer and employee in terms of protecting both of their interests.

The main confidentiality clauses that are normally incorporated into settlement agreements are the following:-

  • A clause which prohibits the disclosure of both the existence of the settlement agreement, and its terms and conditions
  • A clause which prohibits the disclosure of trade secrets, business sensitive information, and client/customer data.
  • A clause under which the employee undertakes not to make any derogatory remarks about the employer, its servants or agents, and a reciprocal clause under which the employer undertakes to use its best endeavours to prevent its servants or agents from making derogatory remarks about the employee.

The problems arise where the employer looks to extend the ambit of the confidentiality clauses too far, to the point where they seek to prevent the employee from raising legitimate concerns that are in the public interest. That is when they can be viewed as “gagging clauses”. Furthermore, any clause that seeks to do that, would be void and unenforceable in those circumstances where the employee is entitled to make a protected disclosure (i.e. whistleblowing in relation to criminal activity, non-compliance with a legal duty, cover ups, etc) under the Public Interest Disclosure Act (PIDA) 1998 (as amended by the Enterprise and Regulatory Reform Act 2013). Under that Act, An employee can make a protected disclosure against their employer so long as they have a reasonable belief that disclosure is in the public interest.

Accordingly, when drafting the confidentiality clauses for the settlement agreement, it is essential to ensure that they are appropriate given the circumstances, and that they are compliant with the PIDA 1998. In that respect, it should be made explicitly clear within the settlement agreement that the confidentiality clauses do not prevent the employee from raising legitimate concerns that are in the public interest, and that they do not either override, supersede, or supplant their rights to speak out/provide disclosure under PIDA 1998.

Posted in Confidentiality Clauses, General Employment Law, Settlement Agreements and tagged , , .