Government "crackdown" on "gagging clauses" is not new, but an important reminder

The use of confidentiality clauses and non-disclosure agreements (NDAs) by employers, whether as standalone agreements, or forming terms within employment contracts, settlement agreements, or COT3 agreements, has been subject to considerable scrutiny in the UK in recent years - despite existing professional obligations on UK regulated lawyers not to advance all-encompassing, unlimited NDAs.

First published by Law360.

Following the government's February 2024 campaign to raise awareness of the Victims' Code (a practical guide to assist victims of crime with understanding the services and support that they are entitled to in the UK) the spotlight has fallen back on the misuse, or perceived misuse, of NDAs and their impact. On 28 March 2024 the UK Ministry of Justice announced plans to introduce legislation to ensure that victims are not prevented from accessing justice and necessary support services. The proposed changes will render "gagging" provisions unenforceable where they would prevent victims of a crime from providing information related to actual or alleged criminal conduct to:

• the police or other bodies that prosecute crime;
• qualified and regulated lawyers; or
• other support services which operate under clear confidentiality principles (for example counsellors, advocacy services, and medical professionals).

This article considers the impetus for the proposed legislation, the SRA Warning notice on the use of NDAs, why (irrespective of the crackdown) solicitors' use of absolute gagging clauses would not be appropriate, and the scope for further reform, with a focus on employers' and their advisers' use of NDAs.

Scrutinising the use of NDAs and impetus for change

Nearly five years ago, in JuIy 2019, the government announced plans for legislation to tackle the misuse of NDAs in the workplace. Later that year, in its response to the House of Commons Women and Equalities Committee October 2019 report “The use of non-disclosure agreements in discrimination cases,” it stated that "using these agreements to silence and intimidate victims of harassment and discrimination cannot be tolerated". In the intervening period, there has been considerable reflection with calls for evidence but minimal tangible progress.  

The government’s latest announcement on new NDA legislation came just a few weeks after the House of Commons' Treasury Committee published its report, Sexism in the City, on International Women's Day (8 March 2024). The report noted the use of NDAs to "cover up" allegations of abuse was a "prominent theme" in evidence it received about sexual harassment in the financial services sector, and made various recommendations, including a ban on NDAs. 

Barely a month before, in February 2024, the Legal Services Board (a statutory, independent body charged with oversight of legal services in England and Wales) published its report, The misuse of non-disclosure agreements: call for evidence themes and summary of evidence, which focused on the role of lawyers’ conduct in the misuse of NDAs. While the Legal Services Board's call for evidence was not limited to the employment sphere, much of the evidence it gathered related to employment and the imbalance between employers and employees.

The Legal Services Board heard evidence of the impact of NDAs on physical and mental health, financial well-being and career prospects. It was concerned about individuals’ lack of understanding about their legal rights regarding NDAs, such as contexts in which a non-disclosure clause would be void, for example if it sought to preclude a worker from making a protected disclosure under the Employment Rights Act 1996.

No timeframe has been given for the introduction of the legislation. The March announcement simply stated legislation would be introduced "as soon as parliamentary time allows". However, for UK-regulated solicitors, there are existing obligations that mean they should not draft NDAs limiting an individual's ability to provide information about criminal conduct in the circumstances outlined by the Ministry of Justice.

SRA Warning Notice

For a number of years, the Solicitors Regulation Authority (SRA) has indicated that it would be improper to use an NDA to prevent whistleblowing, the reporting of an offence and engagement with a criminal investigation, or proper disclosures to medical professionals and counsellors who are bound by a duty of confidentiality. 

The SRA's Warning notice – Use of NDAs, updated in 2020, reminds solicitors of their professional obligations under the SRA Code of Conduct for solicitors, Registered European Lawyers, Registered Foreign Lawyers, and the Code of Conduct for firms. The guidance in the Warning notice broadly advises in-house and external lawyers not to negotiate, draft, advise on, enforce or be a party to an NDA where it may that prevent disclosures relating to criminal conduct or they risk SRA disciplinary action. The proposed legislation, making such NDAs unenforceable, may support lawyers where they have faced commercial objections from their clients and could be seen as a welcome development.

Effect of the crackdown and use of NDAs

The scope of the proposed legislation appears narrower than the ambit of the SRA Warning notice, given it essentially only permits disclosure for the purpose of reporting a crime or accessing support or advice. Much will depend on how "information related to criminal conduct" will be defined or interpreted. For example, in cases of sexual harassment, where the use of NDAs is often critiqued, the conduct may or may not amount to a crime depending on what has or is alleged to have occurred. 

The legislation would, therefore, do little to tackle the use of NDAs relating to other forms of workplace misconduct identified in the Treasury Committee's report, such as bullying and non-criminal sexual harassment (eg sexist banter and misogynistic behaviours). These types of conduct, which can have significant impact on victims' careers and well-being, would be unlikely to meet the criminal conduct threshold. 

The legislation would not prevent NDAs forbidding disclosures to colleagues or media organisations or on social media. The Ministry of justice's announcement even expressly recognised the legitimate use of NDAs to protect commercially sensitive information, financial agreements, and any other obligation unrelated to the permitted disclosures relating to criminal conduct. Therefore, if and when the legislation is introduced, NDAs will still be enforceable in most circumstances where employers would seek to use them.

Nonetheless, reactionary measures by employers and are no longer sufficient, and disengagement from the reality that such behaviours do still occur in the post #MeToo era, carries significant legal and reputational risks. Particularly in cases of sexual harassment, where the risks of failing to take appropriate preventative action against such conduct will increase when the Worker Protection (Amendment of Equality Act 2010) Act 2023 comes into force in October 2024. In future, all in scope employers will be required to take reasonable steps to prevent sexual harassment of employees during the course of their employment.

Future Developments 

This latest proposed legislation demonstrates the continued focus on reform of the use of NDAs and solicitors should be prepared for further developments in this area. For now, the government is not proposing an outright ban on the use of NDAs in harassment cases, as recommended by the Treasury Committee report, and the proposed legislation is likely, in reality, to have little practical effect. 

However, in May 2023 the first industry specific legislation on NDAs was enacted, namely The Higher Education (Freedom of Speech) Act 2023. Once its provisions are in force, it would prevent English higher education institutions from entering into NDAs relating to complaints about "misconduct" or alleged misconduct (misconduct being defined as sexual abuse, sexual harassment or sexual misconduct and other types of bullying and harassment).

The Financial Conduct Authority has also recently required all regulated Lloyd's Managing Agents & London Market Insurers, and Lloyd's and London Market Insurance Intermediaries, to complete its survey by 5 March 2024 about incidents of non-financial misconduct between 2021 and 2023, which includes questions on the use of NDAs. The spotlight seems set to remain on NDAs for some time yet.

Best practice

Solicitors also always need to bear in mind the SRA principles and their duty to act in a way that upholds the rule of law and the proper administration of justice, preserves public trust and confidence in the solicitors' profession, and encourages equality, diversity and inclusion. In compliance with their regulatory obligations, and in line with the conclusions of the SRA's review of the use of NDAs in workplace complaints in August 2023, solicitors should proactively consider whether an NDA is necessary and appropriate in each case. 

In some circumstances, permitting disclosures, rather than imposing confidentiality, may be more beneficial and foster a better corporate culture, although the interests of victims and protection of personal information will always need to be taken into account.

Where an NDA is appropriate, lawyers should avoid absolute gagging clauses, even in matters that do not involve criminal harassment, and instead set boundaries expressly permitting disclosures in limited circumstances, such as where disclosures are required by law, made to the police, HMRC, lawyers, tax and other professional advisers and, in appropriate cases, to immediate family members and medical professionals.