NDAs aren't inherently wrong

There seems to be a developing view that NDAs are inherently bad and that it is in the public interest that they should never be enforced, but the matter is more complex than this

There has been much public debate about the use of non-disclosure agreements (NDAs) by employers and powerful individuals to suppress details of allegations of sexual misconduct and harassment. It is argued that the difference in bargaining power between the parties to these agreements means that economically-vulnerable victims are often left with little option but to agree to an NDA, in order to secure much-needed compensation following the loss of employment through no fault of their own.

However, the issues of the public interest at stake on a case-by-case basis are more nuanced and finely balanced than much of the media coverage would suggest.

It is often not accurate to describe the agreements in these cases as NDAs. Many are not solely NDAs but are settlement agreements containing a non-disclosure provision. In many cases, the allegations of sexual misconduct or harassment may form only one part of a more complex factual background to the settlement.

It is also not accurate that it is always alleged wrongdoers who want to include a non-disclosure provision in a settlement. Blameless victims of sexual misconduct and harassment themselves often want to keep such matters confidential. This can be for any number of reasons, ranging from a desire to put an awful experience behind them to a simple wish to protect their own privacy without having to recount, explain or relive such events again in the public domain.

There is another fundamental issue of the public interest at play as well, which is that the viability of settlement agreements is at stake in this context. Settlement agreements arise in circumstances where the parties agree that they would prefer to settle an allegation rather than litigate it. This may be in order to suppress public knowledge of alleged sexual misconduct or harassment. On the other hand, it may be because of a reluctance on the part of a victim to endure the stress and intrusiveness of litigating.

The whole point of a settlement is that it is an alternative chosen by both parties to accept some benefit instead of allowing a court to determine the facts and legal consequences of the allegations made. In many cases the truth of the allegations settled between the parties may be genuinely and hotly disputed by the alleged perpetrator. By signing an enforceable non-disclosure provision, an alleged victim may be signing away the right to sue and publicly discuss the sexual misconduct or harassment they have suffered. However, equally, the alleged perpetrator is signing away the right to clear their name before a court. To allow the alleged victim then to publicise the, as yet untested and unproven, allegations risks leaving alleged wrongdoers in a position where they have lost their opportunity to answer these allegations in the right forum.

The most likely response to such a position is that many alleged perpetrators may simply refuse to settle in cases involving these types of allegations. This would risk forcing those victims who do not wish to endure publicity either to litigate or walk away with no compensation. It cannot be in the public interest to effectively force parties to litigate when neither wishes to.

This leaves two final important related points.

The first is that it is far from clear that the public interest in being able to disclose wrongdoing in this context should always be equated with a right to publicise allegations of sexual misconduct or harassment, whether through the media or social media. The second related point is that no-one would reasonably suggest that an NDA should operate so as to prevent reporting wrongdoing to the proper authorities, whether to the police or a regulatory body. In the employment context, under our current whistleblowing protections such an agreement is unenforceable, and so such wrongdoing may always be reported. Furthermore, there is nowadays invariably a regulatory requirement to report such conduct regardless of the terms of any settlement.

There seems little doubt that the wider public interest has been greatly served by the enormous publicity given to various allegations of sexual misconduct and harassment. The sheer weight of public opinion has rightly forced employers, individuals and regulators to take these issues very seriously and it has focused discussion on the need to ensure a respectful and compliant culture in the workplace and in social interactions more generally. However, we risk doing significant damage to other aspects of the public interest by simply assuming that there is something inherently wrong with NDAs and that they should never be enforced.

Dan Peyton is managing partner and head of the employment law practice at McGuireWoods' London office