By Chris Hadrill on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs
An NDA, or non-disclosure agreement, is a fairly simple and oft-used document, but its use can be highly controversial, particularly when used to prevent disclosure of workplace disputes. In this article we examine what NDAs are, when and why employers use them, whether employers can force employees to sign NDAs, and what employees can do if their employer tries to force them to use such a non-disclosure agreement.
What is an NDA?
NDA is an acronym for “non-disclosure agreement”. A non-disclosure agreement can be a contract in and of itself, or it can be a clause within another contract, such as a contract of employment, intellectual property agreement, or settlement agreement.
When an NDA is used as a contract in and of itself it normally serves to compel one, or both, parties to abide by certain conditions – this can include, but is not limited to, an obligation to maintain confidentiality about particular matters (such as, for example, a business idea or intellectual property created), to not make derogatory comments about one or both parties, and even to keep confidential the existence of the agreement itself.
An NDA within another form of contract will normally be in broadly the same form as an NDA contract, but forms part (but not the whole) of the terms.
When do employers use NDAs?
Employers tend to use NDAs at the start of the employment relationship, such as in a contract of employment, or at the end of it, for example in a settlement agreement (previously known as “compromise agreements”).
Employment Contracts
Employment contracts are the foundation stone of the relationship between the employer and the employee, setting out what each party can expect from the other. These contracts normally have a confidentiality/NDA clause within them which states that the employee must keep certain categories of information confidential e.g. client databases, financial reports etc., so that the employer can protect its business interests and goodwill.
Intellectual Property Agreements & Confidentiality Agreements
Employment contracts may also have a freestanding ‘Intellectual Property and Confidentiality Agreement’ attached to them – this document tends to contain, as you would expect, more lengthy confidentiality and intellectual property obligations on the employee’s part.
Settlement Agreements
Commonly used at the termination of employment, settlement agreements are a contract between the employee and the employer under which the employer agrees to (normally) pay the employee a sum of money in return for the employee agreeing to waive their potential Employment Tribunal or civil court claims against the employer.
Settlement agreements very commonly contain an NDA clause specifying that the employee, and quite often the employer, must maintain confidentiality regarding the terms of the settlement agreement and the circumstances giving rise to termination of employment.
Why do employers use NDAs?
Employers like to use NDAs in settlement agreements in order to ensure that there is only a very limited risk of the circumstances relating to the dispute being disclosed publicly, and therefore a limited reputational risk. It is important to note, however, that NDAs cannot prevent employees from whistleblowing (for example, disclosing criminal misconduct to the police or disclosing a regulatory breach to a regulator).
Can employers make employees sign an NDA?
If an employee is offered a settlement agreement by their employer then the organisation will normally try and include an NDA in the agreement, for the reasons set out above. However, a settlement agreement does not have to contain an NDA in order to be legally-binding, and employees quite often try and negotiate the NDA clause out of the settlement agreement in order to obtain freedom as to what they can say about their employment, and the reasons why they left their employment, once their employment has terminated. On the other side, employers normally resist amending an NDA, or removing it from a contract, as this weakens the control that they have over the employee’s actions.
Employers cannot force an employee to sign an NDA in general, or an NDA within a settlement agreement or contract of employment, but there is generally pressure on an employee to agree to the NDA: they will generally not obtain the benefit of the contract (whether that is being employed in a job they want, or obtain a settlement package that they’ve negotiated) unless they agree to the terms that the employer wants to impose. There is almost always an imbalance in the employer-employee power structure (in favour of the employer), and employers will tend to exploit this imbalance to try and achieve the outcome that they want.
What can employees do if their employer tries to force them to sign an NDA?
If an employer tries to force an employee to sign an NDA then an employee generally has three options: accept the terms of the agreement; continue to try and negotiate the agreement (whether it is amending or removing the NDA, or seeking improved terms to compensate for the inclusion of the NDA); or withdraw from the agreement and walk away.
The key to these negotiations will always be, as above, judging the relevant power (im)balance between the employer and the employee: in an employment contract negotiation, the questions are how much does the employee want the job, and how badly does the employer want the employee to take the job? When a settlement agreement is being negotiated, how strong are the employees claims, how much are they worth, and how much is the employer prepared to pay to make sure that the claim is settled and kept confidential? Only by negotiating will both parties be able to test the boundaries of what can be achieved.
Chris Hadrill is Partner in the employment team at Redmans
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Chris Hadrill, Khareem Sudlow
