New rules on NDAs – a sledgehammer to crack a nut?
20 June 2019
In January this year we wrote about the use of non disclosure clauses in Settlement Agreements and the fact that these clauses were being reviewed by Parliament’s Women’s and Equalities Committee.
The Committee has now reported, and concluded that non disclosure agreements (NDAs) are having a “destructive effect on people’s lives” and were being used to “cover up unlawful and criminal behaviour”. The Committee have focussed very much on the use of non disclosure clauses to cover up misconduct by the employer, especially of a sexual nature. Whilst there have been some high profile allegations of this type of behaviour, the fact remains that the vast majority of Settlement Agreements, all of which contain non disclosure clauses, are used in perfectly proper circumstances, for example to protect the employer from potential claims where they are paying enhanced redundancy pay.
The committee’s report contains many recommendations, including some which are pretty controversial, and in our view potentially counter-productive.
One recommendation is that employers will have to pay the cost of employees seeking legal advice, and of negotiating the terms in a proposed settlement agreement, regardless of whether the agreement is eventually signed by the employee. Currently, there is no obligation on the employer to make any payment for the employee to obtain legal advice, but it is almost invariably the case that employers do make a contribution to the employee’s legal costs if they sign the agreement. To extend this requirement may well act as something of a deterrent to employers to offer settlements, and that is not likely to be in anyone’s interests. A likely consequence is that the number of disputes will escalate, leading to even more pressure on the already massively overburdened ACAS and Tribunal systems.
There is also a recommendation to extend the time limit for bringing discrimination claims from 3 months to 6 months. Time limits in Tribunals have always been very short when compared to the civil courts, where the norm for most claims is 6 years, but again this extension is likely to lead to more disputes and pressure on the system. That is especially so when combined with another of the committee’s recommendations to massively increase the compensation for damages in discrimination cases. At the moment these are made up of two parts: first the losses suffered as a result of the discrimination (usually loss of wages etc), and second damages which are not loss based, for example injury to feelings. These non loss based damages have been assessed in accordance with guidelines issued by the Court of Appeal (the Vento guidelines, which we wrote about recently here) depending on the severity of the discriminatory act and its consequences for the individual. The guidelines were introduced in the 1990s in order to ensure that damages for discriminatory acts were kept in proportion to damages for other cases, for example personal injury.
The other major recommendation is that the costs system in the Employment Tribunals is reviewed in discrimination cases. Currently, in all Employment Tribunal cases, the normal position is that each party bears their own costs, and that costs awards are only usually made where a party has behaved unreasonably. In practice, costs awards are rare. If costs were to follow the event, as in the civil courts, then it is likely that claimants would add a discrimination claim to claims of unfair dismissal etc in order to try to take advantage of the costs regime. This is likely to make claims more involved, and make defending them more difficult as well. It will almost certainly also lead to Tribunal hearings being longer in order to deal with the additional claims.
Whilst there have undoubtedly been circumstances where non disclosure provisions in a Settlement Agreement have been used to prevent people telling of inappropriate behaviour, we do question whether this is as widespread as the committee and the media seem to think, and whether such significant changes as are being recommended will really make things any better, or just add additional burdens on to employers and the Tribunal system. We will wait and see!
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