NDAs: Not done with after all?

Non-Disclosure Agreements are currently under significant scrutiny following various public scandals in which they have been used to silence employees who were allegedly subjected to harassment by their employers. In light of this recent controversy, this article explores the current debate surrounding NDAs.

What are NDAs?

NDAs are legally binding contracts (also called confidentiality agreements), which commit one or more of the parties involved not to disclose specifically defined confidential information. The use of NDAs has increased since the 1970s and 1980s, and they are now standard clauses in employment contracts.

NDAs are often entered into in return for financial payment. Breach of an NDA may leave the person in breach subject to damages, potentially including any original settlement payment that was received. However, damages may not be an appropriate remedy where the NDA is in place to protect the reputation of the person or company. In these situations, many consider an injunction preferable. This is because an injunction prevents the sensitive or confidential information to which the NDA relates from being reported by the media or other parties, limiting reputational damage.

Why are NDAs currently attracting so much attention?

Several recent scandals have brought NDAs into the spotlight. Notable examples include the #MeToo movement and the behaviour reported at the Presidents Club dinner in January last year. As a result of these high-profile cases, the use of NDAs has seemingly become associated with hushing up claims of harassment and bullying, particularly within an employment context, and some have called for them to be banned. In fact, Theresa May recently told MPs that the government would seek to improve the regulation around NDAs and to make it clear where an NDA does not apply or is unenforceable, as "it is clear that some employers are using them unethically".

Do NDAs have a legitimate role to play in the commercial world?

When used properly and in an ethical manner, NDAs are legitimate and important tools used to protect the interests of commercial entities. Traditionally, they have been used by businesses to prevent employees from disclosing confidential information such as trade secrets or other intellectual property or financial information. For example, technological and pharmaceutical industries have been long-standing in their use of NDAs to protect patents. Some organisations take this a step further; various tech companies require visitors to their offices to sign agreements which prevent them from disclosing anything seen or heard during their visit.

Outside of an employment context, NDAs are often entered into by the parties to a potential M&A transaction. The potential buyer will receive sensitive financial information about the target company and the NDA will prevent this information from being shared. NDAs are also frequently used in sport; Conor McGregor and Floyd Mayweather  signed NDAs which prevented them from discussing the prize money from their boxing "superfight" in August 2017.

Overall, it is understandable that businesses wish to take appropriate measures to prevent sensitive information from becoming public or landing in the hands of their competitors. Having NDAs in place allows businesses to reduce their exposure whilst at the same time being open and honest with their employees by sharing information about the organisation.