Confidentiality and the use of settlement agreements in discrimination cases

United Kingdom

New EHRC Guidance on “The use of confidentiality agreements in discrimination cases” (“the Guidance”) will, we expect, result in changes to settlement agreements and established practice in this area.

While some of the recommendations are to be expected (ensuring no pressure to enter the agreement for example), other aspects of the Guidance are more novel. For example, if your organisation agrees an employee exit by way of a settlement agreement, would there still be an investigation into the allegation of discrimination? Is there a central record maintained of confidentiality arrangements in discrimination cases? These and the other key aspects of the Guidance are considered below.

Meantime, illustrating the continued interest around this topic, the government published its response to the Women and Equalities Committee (WEC) report on the use of non-disclosure agreements (NDA) in cases of unlawful discrimination and harassment. This response largely sets out the legislative proposals that were announced in July.

The Guidance

The focus of the Guidance is on the use of non-disclosure/confidentiality agreements (NDA’s) in settlement agreements (in cases involving discrimination allegations), with a short section addressing confidentiality clauses in employment contracts. 

The recommendations: settlement agreements

  • The use of confidentiality clauses
  • The EHRC is asking employers to move away from a blanket position, and to take a more tailored approach. The Guidance provides some examples of cases where confidentiality agreements will be legitimate, including: where the worker asks for a confidentiality agreement, or where there are legitimate business interests.  

  • The scope of the confidentiality clause
  • If a confidentiality clause is used, drafting should be limited to the extent necessary. For example, the Guidance suggests that it is unnecessary to impose a blanket provision covering the disclosure of an act of discrimination, where the employer’s primary motive is to maintain confidentiality over the compensation awarded for that act. 

  • The limitations of the confidentiality clause
  • The Guidance specifies that confidentiality wording should allow the worker to have discussions with a list of people and organisations. This list corresponds with the proposed statutory list of exceptions (discussed below). In addition, it recommends that wherever obligations are imposed on the worker that these are also imposed on the employer.

  • Employers should pay for the costs of employee’s legal advice even where an employee refuses to accept the deal
  • The Guidance explains “A worker may not decide whether to enter into an agreement until they have received independent advice. Therefore, the employer should pay the worker’s costs even if, having received the advice, the worker ultimately finds the terms unacceptable and reasonably decides not to sign the agreement.” This does not reflect standard practice, with most employers expressly confirming that no fee is payable unless the agreement is entered into. 

  • Employers should consider investigating allegations of discrimination even where a settlement agreement is signed
  • The Guidance suggests that the employer should not treat the settlement agreement as the end of the matter and “where it is possible and reasonable to do so” it should investigate and take reasonable steps to prevent discrimination occurring again in the future.

    If an employer does not do this then, according to the EHRC, this will affect its ability to rely on the reasonable steps defence to discrimination claims before an employment tribunal. In our experience, this defence is very difficult to rely on in any event, so it is not clear whether this will impact approach.

  • Employers should keep a central record of confidentiality agreements in settlement agreements
  • The Guidance recommends this method to allow monitoring for any systemic discrimination issues in the organisation. The central record could include: when confidentiality agreements have been used; what type of claim they were used for; who any allegation of discrimination were made against; what type of confidentiality agreement was used; and why they were used.

Contracts of employment

The Guidance also refers to the use of confidentiality clauses in contracts of employment where they are designed to prevent workers discussing discrimination that occurs in the future. In our experience such an approach would be unenforceable in any event.

The government response to the Women and Equalities Committee report

Whilst the government acknowledged that NDAs play an important part in the employment sphere, proposals for change were set out to strengthen the legal protections offered in this area. The Government rejected many of the requests by the Committee for a more radical reform of the law in this area.

The proposals reiterate what was announced in July 2019 i.e. that legislation will be introduced to:

  • Restrict the use of NDA provisions in employment contracts and settlement agreements, principally to prohibit the silencing of victims of harassment and discrimination
  • Prohibit NDA provisions preventing disclosure to certain groups including the police, health care professionals and lawyers
  • Include a requirement that restrictions to NDAs are explicitly stated
  • Ensure that individuals signing NDAs receive independent legal advice

New measures include:

  • Future consultation to consider whether there should be a statutory obligation on employers to provide a basic reference with job title and dates of employment 
  • Assessing what options may be required to safeguard individuals where tribunal decisions are published online

The proposals are subject to parliamentary time and their implementation may be affected by the result of the upcoming general election. However, it is currently envisaged that ACAS and the SRA will issue guidance. The full report can be found here.

Impact of these changes?

Any confidentiality clause in a template settlement agreement should be reviewed now, in advance of the legislation coming into effect, setting out the limitations of the clause. Further changes will be required once we know the exact content of the legislative amendments.

While the EHRC Guidance is described as reflecting good practice, some of the content arguably goes beyond statutory minimum requirements and established practice. It highlights the increasing complexity in managing allegations of discrimination.