Confidentiality and settlement agreements in discrimination cases

Will new guidance on the use of NDAs result in real change?

While some of the recommendations in the new guidance from the Equality and Human Rights Commission (EHRC) are to be expected – ensuring there is no pressure to enter the agreement, for example – other aspects are more novel. If an 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? 

The focus of the guidance is on the use of non-disclosure or confidentiality agreements (NDAs) in settlement agreements, with a short section addressing confidentiality clauses in employment contracts. 

The EHRC is asking employers to move away from a blanket position and 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.   

If a confidentiality clause is used, drafting should be limited to the extent necessary. The guidance suggests 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. 

Employers should pay for the costs of the 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. 

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. 

If an employer does not do this, according to the EHRC, it will affect its ability to rely on the reasonable steps defence to discrimination claims before an employment tribunal. 

Employers should also 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 it was used.

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. It is likely that such an approach would be unenforceable in any event.

Any confidentiality clause in a template settlement agreement should be reviewed now, setting out the limitations of the clause. 

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.