NDAs and whistleblowing: a trap for the unwary

A recent case

The details of the new policy are unclear, but it may have been prompted by the case of Sue Allison, a radiographer who signed a settlement agreement containing confidentiality clauses after raising patient safety issues. An Employment Tribunal ruled this month that she can pursue a claim in which she will challenge the enforceability of the confidentiality terms. At the same time, the Government is considering introducing additional rules for the use of NDAs/confidentiality terms in employment contracts and settlement agreements. The ongoing controversy highlights the delicate balance that businesses must strike in order to protect their reputation without overstepping the mark, particularly in whistleblowing and discrimination cases.

What is the scope of confidentiality clauses?

The basics of a confidentiality clause in a settlement agreement are usually uncontroversial. They restate the employee's contractual confidentiality obligations and require the parties to keep the details of the dispute and settlement terms confidential and not to make critical remarks about the other party. They usually contain standard exceptions so that the employee can tell their immediate family and professional advisers about the settlement terms (providing they keep it confidential) and the employer can disclose details to their HR team, payroll provider and advisers. There will also be exceptions for any information which either party is legally required to disclose to regulators, HMRC or other third parties.

However, there are important limits on the scope of confidentiality clauses. They cannot prevent individuals making protected disclosures (i.e. blowing the whistle) even if, on the face of it, that's what the clause says. Also, they should not be used to prevent individuals reporting matters to the police or cooperating with any police investigation – and any lawyer who drafted a clause which tried to do so would potentially be committing professional misconduct, following a warning given by the Solicitors' Regulation Authority last year.

In whistleblowing and discrimination cases, this can create real tension – the business will want maximum protection against reputational harm, particularly if the employee's allegations were unfounded or exaggerated. But even with wide confidentiality terms, settlement agreements may not provide this protection. Although many agreements state that the settlement payment must be repaid if the employee breaches the confidentiality terms, such clawback provisions are unenforceable in many cases.

So where does this leave businesses?

In light of these limitations and the intense media criticism scrutiny of NDAs, many businesses are taking a more nuanced approach by using more limited confidentiality clauses and assuming that settlement details may not stay private. Increasingly, these businesses are instead seeking to ensure that the settlement terms do not suggest guilt (e.g. avoiding excessive payments), while also ensuring that the original allegations have been fully addressed. Although this approach has its own risks, it may be a more sustainable strategy long-term, particularly if the Government decides to regulate NDAs more tightly.