Government consults on key changes to use of confidentiality clauses

Following recent revelations of the abuse of non-disclosure agreements, the government has launched a consultation to understand how confidentiality clauses in the current legal context work in practice, and what new measures can be introduced to prevent their misuse. A copy of the consultation paper can be found here.

Confidentiality clauses are usually used in two ways in the employment context; either as part of an employment contract to protect trade secrets and other confidential information, or in settlement agreements to protect the terms of a dispute and allow a clean break between the parties.

There are already certain legal limitations on the use of confidentiality clauses, as set out in statute and relevant case law. For example, a confidentiality clause cannot ordinarily remove someone’s statutory employment rights as set out in the Employment Rights Act 1996 nor can it override anti-discrimination law under the Equality Act 2010. A confidentiality clause also cannot be drafted too broadly and the information to be protected needs to have a ‘necessary quality of confidence’ to be protected. Most significantly, a confidentiality clause cannot prevent a worker’s right to ‘blow the whistle’, and any provision that seeks to do so is legally void.

The report on sexual harassment in the workplace produced by the House of Commons Women and Equalities Select Committee in July 2018 highlighted evidence that employers have misused confidentiality clauses in a number of ways. These include, broad drafting of a clause to make a worker believe that they cannot discuss anything that occurs in the workplace with anybody (including their doctor or the police) or that the worker does not have rights that they do in fact have, such as the ability to whistleblow or bring an employment tribunal claim.

In light of the above concerns, the government is seeking views on the following further limitations on confidentiality clauses to ensure they cannot be misused:

• legislating that a confidentiality clause in an employment contract cannot be used to protect information on discrimination or harassment;
• legislating that no confidentiality clause (either in an employment contract or settlement agreement) can prevent a person making any disclosure to the police, and potentially other specific categories of people or organisation;
• requiring confidentiality clauses to set out clearly their limitations in both settlement agreements and written statements of employment particulars, so that workers are clear on their rights, i.e. make clear that they cannot prevent the worker making a protected disclosure; and
• requiring that in order for a settlement agreement to be valid the advice a worker receives must cover the nature and limitations of any confidentiality clause in the settlement agreement, and the disclosures that the worker is still able to make.

The consultation also considers how to enforce the proposed requirements, and proposes separate mechanisms for settlement agreements and the written statement of particulars. In respect of settlement agreements the government proposes that any confidentiality clause that does not meet the new wording requirements is simply void in its entirety. This will incentivise employers to take care to ensure confidentiality clauses are correctly drafted. In the case of employment particulars, the government anticipates that enforcement will be through a claim to an employment tribunal.

The proposed changes seek to navigate a fair route between the legitimate continued use of confidentiality clauses and the protection of individual rights. However, businesses would need to be very careful in how they implement these clauses to avoid the risk of losing the protection of key business interests due to carelessness. The consultation closes on 29 April 2019.