Legal lowdown: Growth in 'gagging clauses'


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Non-disclosure agreements are increasingly being used as standard business practice

Non-disclosure agreements (NDAs) are firmly in the spotlight following the investigation by the Financial Times into sexual harassment of hostesses at an annual charity dinner popular with the rich and famous. A detailed account of the Presidents Club dinner by an undercover FT reporter alleged groping, harassment and lewd behaviour by male guests.

Female staff working at the event were allegedly told to wear sexy shoes and black underwear, and, crucially, they were required to sign an NDA before starting their shift. The Charity Commission has since opened an urgent investigation and the news made major headlines in the national press.

NDAs or confidentiality clauses are often found in senior-level employment contracts and commercial contracts and are generally in place to protect legitimate business interests. They are now increasingly being used as standard business practice.

A good example is their use by employers who operate exclusive hotels, spas, bars and restaurants that may be frequented by the rich and famous. In a bid to secure the discretion of their staff and obtain repeat business they are, in many cases, choosing to require client-facing staff to enter into additional non-disclosure clauses or ‘confidentiality side agreements’ that go above and beyond the standard clauses usually found in employment contracts. This is intended to protect their businesses (and their clients) from staff who could be tempted to sell gossip or covertly-obtained images.

As well as employers seizing the initiative to increase business, clients also demand that any staff they have contact with have signed specific confidentiality or NDAs.

But it is important to remember that entry into a non-disclosure agreement would not necessarily prevent a harassment claim being made. The courts are likely to take a dim view of employers attempting to use these kinds of agreements to prevent or avoid serious allegations being made, such as in respect of sexual harassment.

What if an employee breaches a NDA?

If there is a lawful and enforceable non-disclosure agreement in place and the employee subject to it then breaches confidentiality by, for example, selling information to the press, this would likely give rise to a viable basis for a gross misconduct dismissal.

Misuse of confidential information and/or breach of confidence are often found on employers' lists of gross misconduct examples but extreme care is still needed when taking action and each matter should be properly investigated and assessed on the facts.

What about ‘settlement agreements’?

It is now common to also find ‘gagging clauses’ in settlement agreements.

Since these are legally binding contracts that waive an individual's rights to make both statutory and contractual claims (in any court, tribunal or forum) related to their employment or termination, they can have far-reaching and significant effects. They can effectively prevent an employee from discussing with any third parties any aspects of their employment, termination or the settlement itself. These can often be used in a heavy-handed and unnecessary way and may be used excessively to close down people’s right to make a statutory claim.

It is wise to proceed with caution when inserting a ‘gagging clause’ in such cases.

Keeping people schtum

We will continue to see more NDAs and confidentiality agreements being used by HR teams, not least to highlight the extent and importance of obligations of confidentiality and the protection of information.

In a social media-rich world there is little doubt that we are going to see more secrets of the rich and famous leaked by employees, probably online. Therefore it is worth paying close attention to your existing employment contracts regarding what you determine to actually be confidential information and how you deal with the confidentiality of that information, and that of your clients, in relation to your staff.

It is better to be proactive rather than reactive, and as we approach ‘salary review season’ it’s a great opportunity to add some further layers of protection to your business.

But in the world of business the art of ‘keeping schtum’ is clearly in need of more assistance.

Andrea London is head of employment at law firm Fletcher Day
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