The use of non-disclosure agreements in discrimination cases Contents

Conclusions and recommendations

Why so many NDAs? Benefits, drawbacks and drivers

1.We are concerned that the imbalance of power between employers and employees is one of the key drivers behind the widespread and commonplace use of NDAs in the settlement of discrimination cases. It is particularly worrying that secrecy about allegations of unlawful discrimination is being traded for things that employers should be providing as a matter of course, such as references and remedial action to tackle discrimination. We have been disappointed, but not surprised, to hear examples of large employers using the significant resources at their disposal to put considerable pressure on employees who pursue allegations of discrimination or harassment at tribunal—for example by making the process more protracted and difficult—instead of taking action to tackle and prevent future discrimination or harassment. There are widespread examples of poor practice in the handling of harassment and discrimination complaints. We are particularly concerned that some employers are using NDAs to avoid investigating unlawful discrimination and harassment complaints and holding perpetrators to account. (Paragraph 26)

2.The Government should begin an awareness-raising programme for employers and employees about how to handle grievances fairly and effectively, including signposting to relevant guidance and support. This should include guidance on the handling of investigations into allegations of unlawful discrimination and harassment following a settlement agreement if this is agreed before any investigation is completed. It should do this within the next six months. (Paragraph 27)

3.The Government should consider requiring employers to investigate all discrimination and harassment complaints regardless of whether a settlement is reached. (Paragraph 28)

4.Employers gain significant bargaining power from their ability to choose whether to provide a reference. The Government should legislate to require employers to provide, as a minimum, a basic reference for any former employee confirming as a minimum that they worked for that employer and the dates of their employment. It should do this within the next year. (Paragraph 29)

Going to employment tribunal

5.We are concerned by the evidence that online publication of tribunal judgments has increased the risk for claimants of being blacklisted by future employers, and that this is a significant barrier to potential claimants bringing discrimination claims. We note that it is possible to be granted anonymity within the employment tribunal system but we are not convinced that this would be apparent to potential claimants and litigants in person. Indeed, the impression we have received from experienced employment lawyers is that anonymity is hard to obtain and rarely granted. We are particularly troubled by the suggestion that ethnic minorities may be disproportionately disadvantaged by the online reporting of tribunal judgments. (Paragraph 37)

6.We reiterate our previous calls for time limits to be extended to six months in cases where sexual harassment, or pregnancy or maternity discrimination, is alleged. Likewise, we reiterate our call for a wider review of the time limit in all discrimination cases. (Paragraph 39)

7.We are concerned that particular groups of people, or people with particular types of claim, may be disproportionately disadvantaged by aspects of the tribunal system. We have outlined particular concerns about how short time limits and online reporting of tribunal judgments might disproportionately affect particular groups. We consider that an equalities review of the tribunal system is long overdue. We must have confidence that the system set up for dealing with complaints of workplace discrimination is not itself having a discriminatory effect. (Paragraph 40)

8.We recommend that the Government commission an equalities review of the employment tribunal system and report publicly on its findings. The review should consider whether particular groups of people, or those with particular types of claim, are being disproportionately disadvantaged by the way that the tribunal system currently operates and whether modifications to the system are required to rectify this. The review should look not only at those who have lodged tribunal claims, but should also seek evidence from those who have considered bringing a claim but been deterred from doing so. (Paragraph 42)

9.We are concerned by the lack of affordable legal advice available for employment discrimination cases. We hope that an awareness-raising campaign will help signpost employees to the free advice that is available, and that such advice will be improved. However, tailored advice will be needed by many employees and access to legal aid for discrimination cases is very limited. We hope that an awareness-raising campaign will help signpost employees to the free advice that is available, and that such advice will be improved. However, tailored advice will be needed by many employees and access to legal aid for discrimination cases is very limited. The Government should review legal aid thresholds and monitor the effect of the changes it is making to improve access to legal aid. We make further recommendations on the provision of legal advice on the content of NDAs below. (Paragraph 49)

10.We are concerned that the tribunal system may have become too onerous for litigants in person with complex discrimination claims. We are currently considering this issue further in our inquiry on Enforcing the Equality Act: the law and the role of the EHRC, but it is clear that many people either do not know of, or do not have access to, support in navigating an increasingly complex tribunal system. We recommend that the Government review the practical support currently available to litigants in person, in consultation with Acas and other relevant organisations, with a view to filling gaps in support. (Paragraph 52)

11.We are concerned that fears about being pursued for employers’ legal costs may be driving individuals to agree to settlement terms such as confidentiality clauses that they do not want which cover up unlawful behaviour. This may be due to a lack of clarity around the costs regime, or to the use of potentially unenforceable threats by the other party or their lawyers. The Government must ensure that there is adequate guidance for tribunal judges and litigants about the circumstances in which a refusal to settle a claim may be considered “unreasonable”. This guidance must be made clear and accessible to litigants in person and should set out that refusal to agree to an NDA should never, in itself, be deemed unreasonable behaviour in this regard. (Paragraph 60)

12.The Government is wrong in its assertion that there is currently “significant deterrent” and compensation for unlawful discrimination within the tribunal system. The evidence we have received from legal experts and from individuals attempting to use the tribunal system demonstrates that this is not the case. Employment lawyers routinely advise potential claimants with strong cases of unlawful discrimination against using the system because the risks outweigh the potential benefits. A rebalancing is required. We also challenge the suggestion that the tribunal system is meeting the stated aim of compensating parties for the detriment suffered and restoring them to the state they would otherwise have been in. When compensation awards are significantly depleted by, or fail to cover, the legal costs of bringing a case, then that party is not being restored to the financial state they would have been in had that treatment not occurred. In addition, no account is being taken of the significant financial and reputational risk of bringing a case in the first place. (Paragraph 65)

13.The Government is wrong to suggest that one-way cost shifting for employment claims would not be defensible. It would be a welcome step towards redressing the imbalance of power, where this exists, between employers and employees with a discrimination dispute. In addition, compensation awards must be significantly increased to incentivise employers to do more to prevent discrimination and harassment in the workplace. This can be done through the introduction of punitive damages and by increasing the current awards available for non-financial losses such as injury to feelings and psychiatric harm. (Paragraph 66)

14.We call again on the Government to urgently improve the remedies that can be awarded by employment tribunals as well as the costs regime to reduce disincentives to taking a case forward. Tribunals should be able to award punitive damages and there should be a presumption that tribunals will normally require employers to pay employees’ costs if the employer loses a discrimination case in which sexual harassment has been alleged. The bands in the Vento guidelines should be increased significantly to take into account the non-financial impact of discrimination. These changes should be made within the next two years. (Paragraph 67)

Content and effect of NDAs

15.We can see no justification for any clause in a settlement agreement to limit an individual’s right to access professional advice or support relating to the workplace harassment or discrimination they have experienced. Likewise, we see no reason why any agreement settling a dispute in which harassment or discrimination is alleged should restrict access to professional services such as legal or financial advice. Not only should such clauses be unenforceable, but agreements should expressly state that nothing within them can prevent the signatory from seeking such professional advice. Likewise, signatories should always have the option of nominating close family or friends with whom they can discuss restricted issues. (Paragraph 72)

16.We are deeply concerned that some individuals who sign NDAs are being left uncertain about what they are permitted to say about the alleged unlawful discrimination, harassment or other employment issue that led to the settlement. This lack of clarity can have a devastating effect on people’s career, self-esteem and personal life. Confidentiality, non-disparagement and similar clauses in settlement agreements need to be suitably clear and specific about information that can and cannot be shared. Most employees will already be covered by their employment contract in terms of commercial confidentiality and this need not be duplicated in an NDA on departure although employees may need to be reminded of this and other relevant obligations in law. It is understandable why an employer might wish to keep confidential the size of the financial settlements. It should, however, be for individuals to decide whether to tell a third party or a new employer why they left a previous employment if the case involved allegations of unlawful discrimination. NDAs should not be used to silence victims of discrimination and harassment, and employers and their legal advisers should not be complicit in using NDAs to cover up allegations of unlawful behaviour. (Paragraph 77)

17.The Government should legislate to ensure that NDAs cannot be used to prevent legitimate discussion of allegations of unlawful discrimination or harassment, and in the public interest consider how to stop their use to cover up allegations of unlawful discrimination, while still protecting the rights of victims to be able to make the choice to move on with their lives. Legitimate purposes include discussing potential claims with other alleged victims, or supporting such victims through the trauma of raising a complaint of discrimination and harassment. (Paragraph 78)

18.We welcome the Government’s undertaking to add the EHRC to the list of prescribed persons for the purposes of employment protections for whistleblowers. We look forward to hearing whether it plans to add any other regulators or relevant authorities to the list, as we previously recommended. However, we also acknowledge the concerns raised by Protect about taking a piecemeal approach to amending whistleblowing legislation. Our concerns about the complexity of whistleblowing law and the lack of clarity about when the public interest test would be met in workplace discrimination cases have been amplified by the evidence we have heard in this inquiry. If employment lawyers, HR practitioners, whistleblowing experts and others are all telling us that they are not clear about the circumstances in which the public interest test is likely to be met—and if those laws are consequently not being tested—then greater clarity is needed. We consider that the legislation needs to be simplified and clarified. (Paragraph 87)

19.The Government should review the operation of measures under the Public Interest Disclosure Act 1998 and the Employment Rights Act 1996. In particular, they should clarify the extent to which these measures can provide protection to those who wish to raise concerns with regulators and other relevant bodies or people about workplace discrimination or harassment. The review should consider: how best to simplify and clarify existing legislation; how whistleblowing law interacts with other relevant legislation such as the Equality Act; and whether the public interest test is workable. (Paragraph 88)

20.There is clearly potential for NDA agreements to be negotiated, drafted, and/or enforced in ways which may amount to perverting the course of justice. It would be helpful for the Crown Prosecution Service to recognise this. Further guidance from the CPS on the type of cases in which it might be appropriate to prosecute would also be helpful. (Paragraph 91)

21.We are disappointed that our recommendation that the Government “should make it an offence for an employer or their professional adviser to propose a confidentiality clause designed or intended to prevent or limit the making of a protected disclosure or disclosure of a criminal offence” is not being taken forward. The Government’s argument that this “could be difficult to enforce” is weak. Failure to tackle poor and unethical practice in this area leaves workers insufficiently protected and facilitates the covering up of discriminatory and, in some cases criminal, behaviour. The Government must show that it is taking this issue seriously. We therefore reiterate our recommendation that the Government should make it an offence for an employer or their professional adviser to propose a confidentiality clause designed or intended to prevent or limit the making of a protected disclosure or disclosure of a criminal offence. (Paragraph 93)

22.We are gravely concerned that NDAs are being used to silence victims of discrimination and can make it more difficult for other victims to obtain supporting evidence for similar complaints. The Government should legislate to ensure that NDAs cannot prevent signatories from sharing information that may be helpful to a potential discrimination or harassment complaint or claim by another employee. Such legislation could build on existing protections in the Equality Act 2010 regarding pay secrecy clauses and victimisation. And we restate that employers and their legal advisers should not be complicit in using NDAs to cover up allegations of unlawful behaviour and that it is in the public interest that the Government considers how to stop the use of NDAs to cover up allegations of unlawful discrimination whilst protecting the rights of victims to be able to move on with their lives. (Paragraph 97)

23.We are deeply disappointed by the Government’s suggestion that simply making NDA clauses unenforceable if they do not meet wording requirements will be sufficient encouragement to ensure that employers draft clauses correctly. We have highlighted the evidence that unenforceable clauses are widely used to deter disclosure of discrimination and harassment. Currently there is little risk to employers and legal practitioners in using such clauses, and considerable risk to the individual in challenging them. Other enforcement measures will be required to bring about a change in practice. We discuss enforcement in more detail in the next chapter. We restate our previous recommendation that the use of provisions in confidentiality agreements that can reasonably be regarded as potentially unenforceable should be clearly understood to be a professional disciplinary offence for lawyers advising on such agreements. (Paragraph 102)

24.Employees without legal representation may be severely disadvantaged in the lead-up to an NDA being signed, as they have very little opportunity to negotiate the terms of the proposed settlement. Minimum requirements for legal advice on settlement agreements are insufficient to ensure that individuals are properly advised on confidentiality and similar clauses. We are concerned that this leaves them vulnerable and particularly at risk of feeling unable to challenge NDA terms that they are uneasy about. It is in the public interest to address this imbalance of power and ensure that individuals are not left feeling that they have no choice but to accept unfair NDAs. (Paragraph 105)

25.We welcome the Government’s proposal to require that the independent advice a worker receives on a settlement agreement must cover the nature and limitations of any confidentiality clause in the agreement, and the disclosures that a worker is still able to make. This advice should also cover any concerns about the reasonableness and enforceability of the terms. However, the cost of this additional requirement for legal advice cannot be allowed to fall on the employee. (Paragraph 106)

26.The Government should require employers to make a financial contribution sufficient to cover the costs of the worker’s legal advice on any settlement agreement proposed by the employer. This advice should cover, as a minimum, the content and effect of any confidentiality, non-derogatory or similar clauses, and any concerns about the reasonableness or enforceability of those clauses. Where the worker wishes to negotiate the terms of those clauses, further contributions should also be payable by the employer to cover the costs of legal advice and representation for those negotiations. These contributions should be payable regardless of whether the employee signs the agreement. (Paragraph 107)

27.There is a clear need for action to ensure that confidentiality, non-derogatory and other clauses cannot be drafted in such a way that they lack clarity about what the effect of the clauses are and, importantly, about the types of disclosure that they cannot prevent. Clauses must be suitably specific, without being overly stringent, and their limits should be clearly set out. We are not convinced by the Government’s arguments against the need for standard clauses. We have found wide support for this idea and believe it has the potential to bring an immediate step change in lawyer and employer practice in this area. (Paragraph 110)

28.We welcome the Government’s consultation on the use of confidentiality clauses. However, we note that other types of clause can also have a gagging or chilling effect. We recommend that the Government should legislate, within the next two years, to ensure that any clause in a settlement agreement that has the effect of controlling what information an individual can share with other people, organisations or bodies should:

29.We further recommend that the Government should legislate, within the next two years, to require the use of standard, plain English, confidentiality, non-derogatory and similar clauses where these are used in settlement agreements, with additional guidance on suitable forms of wording to ensure that they are clear and specific. Standard clauses on the damages that can be reclaimed for the breach of confidentiality, non-derogatory and similar clauses should also be included. Non-standard clauses of this type should be legally unenforceable unless the relevant party can show a clear need for alternative clauses. This reasoning should be provided with the draft agreement to enable those giving legal advice on the effect of such clauses to advise on their propriety. The direction of travel of the Government should be towards assessing in the public interest how to stop the use of NDAs where there are allegations of unlawful discrimination whilst still protecting the rights of victims to move on with their lives. (Paragraph 112)

Compliance and enforcement

30.We agree that the Law Society’s guidance on NDAs needs revisiting. (Paragraph 120)

31.Regulators of members of the legal profession must make it clear to those they regulate that they will take rigorous enforcement action in this area if they become aware of actions and behaviours that do not meet the high ethical standards expected of legal professionals. This should be set out in guidance and followed up by appropriate action. (Paragraph 121)

32.Effective enforcement of workplace protections requires a careful balance of encouraging compliance and delivering enforcement. The evidence is clear that currently there simply is not enough enforcement in the mix. We have repeatedly highlighted the lack of regulation and dearth of meaningful sanctions around employer action to protect workers from discrimination. The Government has failed to ensure that there is sufficient incentive to encourage employers to take appropriate action to tackle and prevent discrimination and to ensure that complaints about discriminatory behaviour are handled and, where appropriate, settled in a responsible way. As a result, the law as it stands is not working as Parliament intended it to in providing protection from unlawful discrimination and harassment. (Paragraph 124)

33.We welcome the forthcoming introduction of a statutory code of practice on sexual harassment and harassment at work. The code will provide important guidance for employers, but we are sceptical as to how effective the code will be without a corresponding duty requiring employers to take appropriate action to tackle these issues. We repeat our previous recommendation from our 2018 Report that the Government should place a mandatory duty on employers to protect workers from harassment and victimisation in the workplace. Breach of the duty should be an unlawful act enforceable by the Commission and carrying substantial financial penalties. Consideration should also be given to whether the duty should be widened to cover any form of unlawful discrimination or harassment. (Paragraph 125)

34.The Government should require employers to appoint:

These roles should not be seen as the responsibility of an HR or support function but should be given to a manager with responsibility for a business function within the organisation. (Paragraph 126)

35.Guidance from regulators and other trusted sources such as Acas must do more to highlight the responsibilities of lawyers, professionals and managers to “report up” to senior managers and boards any concerns they may have about systemic issues with culture and discrimination, or about repeated or especially worrying allegations of improper behaviour by a particular individual or in a particular business area. The SRA should consider drafting guidance for lawyers on reporting up within their own firm and their client organisations, including on how to balance this with their other professional obligations. EHRC, Acas and other guidance and codes of practice on the use of NDAs in discrimination and harassment cases should highlight the responsibilities of HR professionals and line managers to report such concerns to senior managers and board members. (Paragraph 127)

36.We welcome the appointment of Sir David Metcalf as Director of Labour Enforcement and the proposed consultation on a new single labour market enforcement body. We will consider further in our Enforcing the Equality Act inquiry how this work could interact with that of the EHRC on enforcing employers’ actions to protect workers from discrimination and harassment. (Paragraph 128)

37.We can see the potential merits of requiring employers to collect data, and potentially report, on the use of NDAs in settlement agreements, and on complaints and grievances about discrimination and harassment. However, we think it important to consider further how such data could be used, what kind of qualitative oversight could be provided and by whom, and any potential unintended consequences. (Paragraph 130)

38.The Government should consider requiring employers to collect data and report annually on:

39.We have already called on the Government to introduce employer reporting on maternity retention rates in our response to its recent consultation on pregnancy and maternity discrimination. We restate that call here. (Paragraph 133)

40.We are convinced of the need for boards of public and private companies to take greater responsibility in overseeing their organisation’s use of NDAs in settling harassment and discrimination cases, as well as its action to tackle and prevent improper behaviour. Current corporate governance requirements simply do not go far enough to require companies to meet their responsibilities to protect employees from discrimination and harassment. (Paragraph 137)

41.The Government must strengthen corporate governance requirements on all companies—public and private—to require them to meet their responsibilities to protect those they employ from discrimination and harassment. These should include:

42.The Government should strengthen regulation of companies’ adherence with their corporate governance responsibilities, including by ensuring that there are appropriate sanctions for poor practice. (Paragraph 139)

Conclusion

43.The evidence clearly shows that there needs to be a package of measures: the misuse of NDAs is one element of a wider system of legislative, regulatory and judicial measures and processes that are failing to protect employees from discrimination and abuse of power. Individuals who have experienced discrimination can feel that they have no option but to reach a settlement, which will routinely include secrecy clauses. We have seen that the use of unethical, vague or excessively restrictive NDAs can create long-lasting fear for those who sign them and can curtail their career. (Paragraph 146)

44.We are encouraged to see that some employers, particularly in the public sector, now routinely settle discrimination cases without using NDAs, demonstrating that confidentiality clauses are not intrinsic to settlement agreements. Other public sector employers must now take the lead in ensuring that NDAs are not used to cover up discrimination and harassment, allowing such behaviour to go unchecked. Lawyers and employers must think more carefully about why they are requesting confidentiality and whether it is needed at all, and individuals should never feel forced into signing an NDA. (Paragraph 147)

45.There is a clear public interest case for changing the law to provide more protection for employees who face job loss because of discrimination at work. Something more radical than tinkering with the wording of NDAs is required. The Government must ensure that legislative, regulatory and judicial systems do more to prevent harassment and discrimination and to support individuals who find themselves subjected to such behaviours. Our recommendations set out the actions that the Government and regulators should take to bring about a step change in the use of NDAs in discrimination cases. (Paragraph 148)



Published: 11 June 2019