Why proposed NDA reform helps employers

The landscape will in fact look very similar, and by stripping out abuses the ability to rely on an NDA clause is potentially strengthened

The government has launched a consultation process to propose increased regulation of NDAs. Most employers will find nothing objectionable in it and it's likely that the government's review of NDAs will facilitate their use.

The government's proposals consider NDAs in the context of settlement agreements and employment contracts. The proposals rightly recognise that a tightly drafted confidentiality clause may inhibit an employee who wishes to disclose allegations of wrongdoing. The proposals distinguish between these two types of NDA, in particular in relation to the sanctions that would be imposed for failure to comply with the proposed new requirements.

Most NDAs are contained in settlement agreements, where the employer and employee agree that the allegations, which are being resolved by the settlement agreement, will not be aired publicly. The proposals require an NDA clause in a settlement agreement to be explicit about the limitations of the clause. For example the NDAs should make it clear that there is no prohibition on reporting wrongdoing to the police.

It is surprising that at this stage the government has not also included disclosure to a relevant regulator as an unfettered right. It does seem anomalous that a disclosure to a regulator might be constrained in some way by an appropriately drafted NDA. It is also intended to require individuals entering into a settlement agreement to have a received advice from an independent adviser as to the effect and limitations of the NDA clause. Since most settlement agreements are signed off by an independent lawyer, it is likely that this will at most involve some redrafting of the certificate from the solicitor who has represented the individual.

If the settlement NDA clause does not comply with the legal obligations then it is proposed that the entire clause would be void. This might seem like an obvious sanction to impose. However, the issue is more nuanced.

There is plenty of evidence that many employees entering NDAs in settlement agreements are as keen as the employer to put the past behind them. Therefore the proposed sanction may be of limited impact, because the employee has no desire to broadcast the allegations even in the absence of a binding NDA. Equally an employer may be happy to be released from an invalid NDA if it subsequently wishes to air its views.

The government proposes that NDA/confidentiality clauses in employment contracts should also have express limitations. There is a significant difference in the proposed sanction. If an employer fails to comply with the proposed obligations then the government acknowledges it would be inappropriate for any duty of confidentiality to be removed altogether. Instead, if the employee is bringing a tribunal claim in respect of a breach of another right, a tribunal would be able to make an additional award to the claimant, in respect of the failure to provide an appropriate confidentiality clause in the contract of employment.

This is an extremely weak sanction. The individual has to know about the right to bring the claim in the first place, and have the desire to challenge the NDA clause. It might be more appropriate if the government were to include a further power to enable a tribunal to make a recommendation that the (invalid) NDA clause is 'corrected' in the contract (if the contract continues) and that this amendment is communicated to all other employees of the employer who suffer from the same invalid NDA wording.

The government has made decisions on two changes it is not proposing. The Women and Equalities Select Committee suggested that seeking to impose an unlimited NDA should be a criminal offence. The government has rejected this. This seems sensible. The government considered whether to specify standard suitable exclusion wording to be incorporated into NDAs but rejected this because some flexibility should be allowed. It may be that employers would welcome additional guidance, perhaps from ACAS, as to the appropriate limitations to build into NDAs.

Overall, these proposals require employers to review their contracts of employment and settlement documentation. However once any necessary drafting changes are made, the landscape will look very similar. Indeed by stripping out the obvious abuses of NDA clauses, the ability of an employer to rely on an NDA clause is probably strengthened.

Nick Robertson is head of employment in London at Mayer Brown