< Back

Share |

Is an NDA still worth the paper it's written on?

Are NDAs still an effective or realistic legal tool to use when settling disputes involving unproven allegations? If they can't be enforced, what are they worth?

February 2019

What use are non-disclosure agreements to prevent the disclosure of unproven allegations? This issue has come into focus, particularly in the employment context, because the commendable rise of the #MeToo movement has led to individuals breaching NDAs entered into in settlement of alleged sexual misconduct, on the basis of public interest. One highly publicised incident recently saw the subject of a successful injunction application granted by the Court of Appeal in ABC & others v Telegraph Media Group Limited (ABC), named during a House of Lords debate in reliance on Parliamentary Privilege.

Can NDAs be used effectively to conceal alleged wrongdoing?

The recent spotlight on sexual harassment in the workplace has triggered a much needed public discussion on the use of NDAs to conceal alleged wrongdoing, ie wrongdoing which an employee has accused another (often a more powerful male) of, but which remains unproven. The SRA and the Law Society have recently issued guidance on the use of NDAs and the House of Commons Women and Equalities Select Committee published a report on sexual harassment in the workplace. It is also conducting an inquiry into the use of NDAs in harassment and discrimination cases, focusing on whether these types of NDA are being abused and whether their use should be regulated as a result. This is an important question of policy, but not yet of law.

The question from a legal perspective is whether NDAs are still useful to those seeking to prevent disclosure of allegations (whatever the rights and wrongs of the allegations may be). Can NDAs still bind employees and will the courts uphold them or are they really moving away from enforcing them? Has the range of what might be in the public interest really expanded sufficiently to allow routine breach of NDAs in cases of any type of alleged sexual misconduct post settlement, to the extent that they are no longer effective?

It is important to separate the policy issues from the legal ones. Whether or not it is desirable for NDAs to be used to prevent publication of potentially embarrassing allegations is not the same question as whether or not they remain legally effective and enforceable against ex-employees or the media threatening to make disclosures.

A case in question

Let's consider a hypothetical scenario to explain the approach of the courts to the enforceability of an NDA used to conceal alleged wrongdoing in light of recent case law.

Scenario

Allegations of sexual harassment are made by one employee against another. The allegations are denied but the employee is unhappy with the way her grievance was handled which leads to an employment dispute. Lawyers are instructed on both sides and an employment tribunal claim is threatened. Rightly or wrongly, this acts as leverage to settle the dispute for fear of the allegations becoming reportable in open proceedings on one side, and worry about having to go through the ordeal of proving the allegations are true at a hearing on the other. Settlement offers are exchanged which envisage payment of a sum in return for various promises, including reciprocal undertakings to keep the allegations confidential. After negotiation, an offer is accepted and the parties freely sign a settlement agreement with the benefit of legal advice (which is required by law to settle statutory employment claims). A binding contract is formed along the usual lines of offer, acceptance, consideration, intention and certainty of terms.

Sometime later, the ex-employee discloses the details of the allegations to a journalist who is told about the NDA. The other parties to the NDA are unaware and so cannot act upon the breach at this point. That third party later approaches the other parties threatening to publish the allegations in a news article claiming public interest in the story.

It is at this point the other parties become aware of the breach by the ex-employee. Various potential claims arise allowing them to apply to the court for an injunction (which the courts recognise as the most effective remedy in confidence cases) to stop publication temporarily until trial. These claims are:

  • Claims for breach of contract and common law breach of confidence against the ex-employee.
  • A claim for breach of common law confidence against the newspaper threatening to publish the information (there is no breach of contract claim because the newspaper is not a party to the contract, but a claimant could sue for inducement of breach of contract).

The claimant – when will an injunction be granted?

The threshold for claimants in confidence cases for obtaining an injunction is higher than the standard test under American Cyanamid. This is because where the court is considering whether to grant any civil remedy or order which might affect the right to freedom of expression under Article 10 of the European Convention on Human Rights (ECHR), it must also consider section 12 of the Human Rights Act 1998 (HRA). Section 12 states that no relief shall be granted so as to restrain publication before trial unless the court is satisfied that the applicant is likely to establish that publication should not be allowed (in other words, as determined in Cream Holdings Ltd v Banerjee "likely to succeed" at trial).

In breach of confidence claims, given the court's view that there is a public interest in two parties upholding obligations of confidence, the test for establishing a breach is whether, in all the circumstances, it is in the public interest that the duty of confidence should be breached (not just whether publishing the information would be in the public interest).

The test is one of proportionality which involves consideration of all the relevant circumstances, the nature of the information and the balancing of competing factors (HRH the Prince of Wales v Associated Newspapers Ltd). Therefore, when a claimant seeks to enforce obligations of confidence, they must establish that they are likely to succeed in satisfying this test at trial, which is a high burden.

Given section 12 HRA applies to all cases where the relief sought will affect Article 10 rights (which the court cannot derogate from), its application stretches beyond common law breach of confidence claims and applies to a breach of a contractual duty in a settlement agreement if enforcing that duty affects Article 10. This is even though one party may freely and voluntarily agree to restrict their Article 10 rights under a contract between two private parties.

Ex-employee – will the NDA be enforceable against the ex-employee?

Contractual and Article 10 considerations overlap in relation to ex-employees when seeking to enforce obligations of confidence. Enforcement of the NDA will depend on whether it is enforceable as a matter of contract (as the ex-employee is bound) as well as whether it is in the public interest that the duty of confidence be breached. Both elements will involve a consideration of Article 10 rights.

Contract

As to whether the terms are enforceable as a matter of contract, the following considerations apply:

  • Intention of the parties in common at the time the contract was made. If, for example, the agreement was concluded prior to someone starting their job as a personal chauffeur of a celebrity, the intention of the agreement would be assumed to be protecting any personal information regarding the celebrity.
  • Duration. The length of time that the information must be kept confidential should be reasonable in order to be enforceable. Protection of confidential information can extend beyond termination of the contractual relationship.
  • Reasonableness of the clause at the time the contract was entered into, as well as whether it would be reasonable to enforce it in light of events that have occurred. This includes balancing the interests of the disclosing party with the burden on the receiving party.
  • Independent legal advice. Was it sought, in sufficient time, before entering into the contract, thus minimising the risk of an individual claiming undue influence at the time of signing? An individual cannot settle statutory employment claims in a settlement agreement without receiving independent legal advice, but an individual who has negotiated a settlement through the advisory and mediation service ACAS may not be legally represented.
  • Definitions. Confidential information should be narrowly defined to include specific information and document types where known at the time of the agreement.
  • Certainty. Terms need to be certain and clear to be enforceable.
  • Public domain. The disclosing party should be able to justify why the confidential information is confidential, including that such information is not already in the public domain.
  • Authorised disclosures. For example, the contract should not preclude the parties from making protected disclosures, reporting a crime or cooperating with law enforcement or regulatory authorities, obtaining professional advice or obtaining therapeutic or medical treatment, or to the individual's spouse, partner or close family.
  • Proportionality.The terms should not amount to a disproportionate interference with Article 10 (see below).

With reference to our scenario, the absence of these requirements would make it less likely that the terms (including the duty of confidence) are enforceable in contract or compliant with the SRA and Law Society guidance. As a result, the court has held that it would be less likely to enforce such a settlement obligation overall, see Mionis v Democratic Press, where Sharp LJ stated:

"Whilst each case must be considered on its facts, where the relevant contract is one in settlement of litigation, with the benefit of expert legal advice on both sides, particularly where article 10 issues are in play in that litigation, it seems to me that it would require a strong case for the court to conclude that such a bargain was disproportionate and to refuse to enforce it other than on ordinary contractual or equitable principles".

Therefore, including the above terms is an important starting point in any scenario for enforcing obligations of confidence because having an enforceable NDA in accordance with contractual and equitable principles will make it harder to argue that enforcing it would be a disproportionate interference with Article 10.

Article 10

A duty of confidence can arise irrespective of the existence of any parallel contract to that effect (for example, see ABC where the claimant had no contractual relationship with the media). However, the existence of express contractual obligations arguably adds weight to the duty of confidentiality when balancing competing interests, although this will depend on the circumstances (Campbell v Frisbee), including the nature of the relationship that gives rise to the duty of confidentiality (HRH the Prince of Wales v Associated Newspapers Ltd, where the fact that a disloyal employee had, in breach of contract, disclosed private journals to a newspaper was an important factor adding weight when applying the test of proportionality).

Conversely, section 12(4) HRA requires the court to have particular regard to the importance of Article 10 where section 12(1) applies. However, in Mionis, Sharp LJ stated

"…article 10(2) permits restrictions….for the protection of the reputation and rights of others which includes, in this case, the private rights of the parties under an otherwise validly constituted contract of settlement. This is something to which the law attaches considerable importance and save in well-defined circumstances, such contracts would normally be enforced…The analysis [in relation to section 12] after a settlement agreement has been freely entered into and the parties have waived their respective rights, is not the same as that which arises at the interim stage say, in a contested privacy or defamation action. That is to ignore the importance in the public interest of parties to litigation, including this kind of litigation, being encouraged to settle their disputes with confidence that, if need be, the court will be likely to enforce the terms of a settlement freely entered into on either side".

In that case, it was held that the interference with Article 10 caused by the enforcement of settlement terms between the parties (which required the defendant to refrain from publishing articles about the claimant in relation to certain subjects), was not disproportionate on the facts because:

  • There was no reason to doubt the validity of the settlement on ordinary contractual principles;
  • The parties were on an equal footing and entered into it voluntarily with their eyes open after negotiations;
  • Each side was advised, intended to comply and consciously waived their options to keep litigating; and
  • The defendants agreed to abide by terms which could limit what they could say in return for the claimant giving up his rights.

This means that the courts will give considerable weight to enforcing settlement agreements and the public interest in enforcing them (provided they are contractually robust) is likely to be weighed more heavily in the balance than Article 10.

The Media – will the NDA help prevent publication of the allegations it seeks to protect?

Even though the media will not be a party to the NDA, the short answer is 'yes'. Again, contractual and Article 10 considerations will overlap.

Contract

ABC demonstrated some of the issues the courts are likely to consider. The Telegraph obtained details of allegations made in complaints brought by five employees against the same senior executive, all of which were later settled under settlement agreements containing NDAs, including those complainants who initiated Employment Tribunal proceedings. An application for an interim injunction to prevent publication by the Telegraph was refused at first instance, but granted in the Court of Appeal which placed great emphasis on the existence of the NDAs, even though the Telegraph was not bound by them. This was because the Telegraph knew of the NDAs signed by the ex-employees and, therefore, the equitable principle that he who has received information in confidence shall not take unfair advantage of it (Seager v Copydex Ltd) extended to them. Further, the NDAs enhanced the weight of the obligations of confidence, strengthening the public policy reasons in upholding those obligations, which had a significant influence on the analysis carried out under section 12(4) of the HRA for the reasons set out in the next section.

Article 10

The court will assess, in accordance with the higher threshold in section 12 of HRA, whether Article 10 outweighs the relevant duty of confidence making its breach in the public interest, taking all relevant circumstances into account. This makes the exercise highly specific to the case in question.

In the ABC case, for example, the court considered the following issues, holding eventually that it was not in the public interest that the duty of confidence be outweighed:

  • It was likely that the information the Telegraph wanted to publish was covered by NDA;
  • The nature of the information was in debate with arguments going both ways as to credibility, the most serious allegations were denied and the opportunity to have their truth verified had been lost via settlement;
  • The most serious allegations were not in the public domain; and
  • The breach of confidence was not justified as a matter of public interest because of strong public policy reasons for upholding NDAs, including their legitimate role in the consensual settlement of litigation enabling employees to receive substantial pay-outs, unethical practices were not present in this case, there was no evidence of bullying or undue influence, each person had the benefit of independent legal advice and disclosure of wrongdoing to the authorities to third parties was authorised, and two complainants out of five supported the application, one of whom said they wanted to protect their privacy.

The court also said that the role of the media as a watchdog is only one side of the scales in determining where the balance lies and anonymising the employees in news reports would not be enough to side step important policy considerations, which are best considered following a trial with the benefit of evidence over the facts in dispute before the court.

While the court decided in ABC that the enforcement of confidentiality was unlikely to be defeated at trial by a public interest defence (although it now appears this will not proceed to trial), if the circumstances were different in our scenario above, the court's decision might in turn be different. For example, a different outcome would be likely where: one party had no independent legal advice when they entered into the NDA; the undertakings were not reciprocal; there were no safeguarded rights to make disclosures to authorities; some important details were already in the public domain; or the allegations were highly credible with little evidence going the other way.

Are NDAs weaker now for legal or other reasons?

It is clear that issues of contract and freedom of expression are interlinked when considering the enforceability of these types of NDA in claims against ex-employee and media defendants. The existence of express contractual provisions affects the ability of a party to enforce the terms of an NDA against both the employee who is bound as a party and the press who are not. Similarly, the Article 10 rights of an ex-employee and the media will play a key role in whether the court decides to exercise its discretion in favour of, or against, granting an injunction to enforce an NDA.

It also follows from the case law that parties who freely enter into agreements to settle litigation, with professional advice, are made to uphold what they agree. Freedom of expression is a qualified right and the Court of Appeal has made it clear that interference with it will not be considered disproportionate in cases where parties freely enter into a settlement agreement (including an NDA) lightly, even in cases involving the concealment of alleged, unproven wrongdoing. In this instance, the courts may prefer to grant an interim injunction until trial.

The courts may even (as was argued for in the ABC case) be prepared to accept a lesser degree of likelihood in cases where the potential adverse consequences of disclosure are particularly grave causing immediate, irreversible and substantial harm or where a short-lived injunction is needed to enable the court to hear and give proper consideration to an application for interim relief pending trial. This derogation from the higher threshold will be seen by some as alarming, especially in relation to matters as serious as sexual harassment in the workplace, because it lowers the otherwise higher threshold set by section 12(3) when the reason for raising it in the first place was to protect freedom of expression.

While there is no foundation to the theory that NDAs have become less legally effective, there are other (non-legal) factors which may have weakened them. Even though the recent decisions make it clear that NDAs are still worth the paper they are written on and ABC was successful in court, potential adverse publicity will be a key risk factor before taking legal action.

Many potential claimants will be daunted by the prospect of embarking upon proceedings to enforce NDAs for several reasons:

  • First, a newspaper is likely to fight an injunction application to stop a story disclosing confidential information about alleged sexual misconduct disclosed in breach of an NDA; all the more so following the media furore over ABC.
  • Second, high profile claimants will want to avoid being the next individual to be named by a Lord or an MP. The fear of becoming such a target will cause anxiety, even though naming individuals anonymised by a court injunction in Parliament is highly unlikely to take place as a matter of course.
  • Finally, employers may be reluctant to sue ex-employees who breach NDAs for fear of a possible backlash, particularly where allegations pertain to morally worthy campaigns, such as #MeToo.

Ultimately, taking action in these situations will be as much about publicity risks as the legal merits (which, as discussed, will depend on the circumstances). However, publicity considerations are unlikely to dissuade claimants suing those who disclose confidential information in other situations, for example, those who disclose commercially sensitive information or details of settled, commercial disputes or trade secrets.

It is important to remember that NDAs are used (even by the media) across many areas of the law, not just in the employment context, but in relation to a wide range of categories of information. They are very likely to remain a valuable tool to be used with little controversy in these other, less topical, areas and very much worth more than the paper they are written on.

If you have any questions on this article please contact us.

business people office
Michael Yates


Michael considers whether NDAs are still an effective tool to prevent the disclosure of claims made of alleged wrongdoing as part of and when settling litigation.

"While there is no foundation to the theory that NDAs have become less legally effective, there are other (non-legal) factors which may have weakened them."