The Diminishing Power of NDAs in Employment Agreements

A Non-Disclosure Agreement (NDA) is a widely used legal term and in the press the concept is often characterised as a “gagging clause” where a complainant is silenced in return for a payment from their employer. The precise drafting of these clauses can set limits on what a signatory can say and to whom about specific issues and can be very wide in scope.

The ethics of NDAs have been widely debated following the #Metoo movement and campaigners have argued that they silence victims and enable discriminatory work behaviours and abuses to be hidden. It is argued that the imbalance of power in the employment relationship can foster a culture of silence and prevent employees speaking out.

There are, of course, legitimate uses of NDAs around protecting intellectual property, commercially sensitive and confidential information, but it is especially important for employers to be aware of the new Section 22A in the upcoming Employment Rights Bill which will void NDAs in employment agreements in certain scenarios.

Described as a “world leading amendment” in the House of Lords, the important amendment to the Employment Rights Bill on NDAs was proposed on 7 July and voids as unenforceable any obligation of silence imposed on an employee or worker who has an Equality Act complaint of harassment or discrimination. The restriction applies also to any witness or colleague of the impacted party.

Many settlement agreements already include exclusions to confidentiality provisions to permit reporting offences to the police and other organisations, but this new obligation significantly broadens the circumstances where NDAs are unenforceable.

Any provision in an agreement between an employer and employee that precludes the individual from making an allegation of harassment or discrimination together with any allegation relating to the employer’s response will be void and unenforceable. There are nine protected characteristics under the Equality Act and many jurisdictional components and therefore a considerable number of potential claims. This is a very wide-ranging carve-out from the enforceability of NDAs. It also appears that any allegation or disclosure may be caught, whether proven or not proven and whether made in good faith or not.

Before this legislative change is implemented (and with the timings of that still to be established), many employers will have used NDA terminology in settlement agreements with employees around Equality Act complaints. Whilst those historic provisions are not yet retrospectively cancelled or voided, it is highly questionable (and very unlikely) that employers will now choose to enforce historic obligations on NDAs, as that could be reputationally damaging whilst the new laws are awaited.

Excepted agreements

The amendment text to the Employment Rights Bill indicates that the Secretary of State may make Regulations to provide for “Excepted Agreements” where the general rule on the prohibition of this type of NDA does not apply. It is not envisaged that this will apply to settlement agreements as that would defeat the whole object of the legislative intention here. Leading commentators suggest that there may be cases where an employee wants an NDA and so it is expected that there will be further Regulations that better specify that moderation.

The general direction of NDAs is that they are becoming less enforceable in the employment context and it is expected that there will be further expansion of this general principle and that the proposed ban may be extended to interns and other categories of worker to follow.

It is already the case that NDAs cannot be used to prevent individuals from reporting criminal offences to the police. This principle is set out in the Victims and Prisoners Act 2024, which takes effect from 1 October 2025. From that date, employers must ensure that any NDA entered does not seek to restrict disclosures relating to criminal conduct.

Next steps for employers in a post-NDA world?

1. Employers should review existing historic NDA obligations within signed employment waiver documents and consider the extent to which there is any desire to enforce them in light of the impending changes and significant shift in the legal landscape.

2. For future settlement agreements after the new law is implemented, employers will have to amend the language around confidentiality to ensure compliance with Section 22A when it is introduced.

3. With NDAs losing their enforceability in Equality Act scenarios, employers may need to revise settlement strategies. That may be easier said than done and employers may invest more in defensive strategies such as bolstering policies and procedures and investigations to be able to show all reasonable steps have been taken to limit claims potential.

4. Organisations need to be aware of greater risk potential that discrimination and harassment claims may be made public. That involves HR teams appraising management of the changing legal landscape in this area.

Presently, individuals have the benefit of independent legal advice under the auspices of a settlement agreement and therefore have guidance on the financial value of these types of drafting restrictions. That does provide a level of protection for individuals but clearly the legislative intention goes further and limits the scope of NDAs quite significantly.

Baroness Jones of Whitchurch referred to the pioneering work of Zelda Perkins in lobbying Government to introduce this element of legislative reform and further information on her campaigning can be read at Can’t Buy My Silence UK.