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Unveiled: The Rise of Non-Disclosure Agreements in English Law

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About The Author

Matt Bennett (Regular Writer)

Matt is a graduate from the University of Edinburgh, where he studied history, and spent a year abroad at Georgetown University in Washington, D.C., studying politics and international relations. He is currently pursuing an accelerated law degree at the University of Bristol, and has a particular interest in international arbitration, shipping law and information law. Outside the law, he enjoys spending time with his dog, hiking, sailing, and learning to play squash.

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I want to publicly break my non-disclosure agreement. Unless somebody does this there won’t be a debate about how egregious these agreements are and the amount of duress that victims are put under.

Zelda Perkins, Harvey Weinstein's former assistant

Non-disclosure agreements were recently described by the Financial Times as “a tool used by the wealthy and powerful to silence victims.” In the wake of the sexual harassment scandals surrounding, inter alia, Harvey Weinstein and Sir Philip Green, these agreements designed to keep things quiet have never been more exposed.

However, despite receiving significant amounts of negative media attention and public criticism for their role in silencing victims, non-disclosure agreements (NDAs) are used far more widely in the business world for less scandalous reasons. This article will explore some of the positives and negatives of using an NDA, as well as their current and future role within English law.

The Positive Aspects of Non-Disclosure Agreements

When separated from their poor reputation, the benefits of using NDAs for companies, government organisations and individuals are genuine in many situations. The obvious use of an NDA is to prevent the publication of sensitive information, but this can take many forms.

For example, certain civil servants essentially work under an NDA, as their specialisms are covered by the Official Secrets Acts of 1911 and 1989, which prevents the release of sensitive government information. In addition, NDAs are often used in the private sector throughout potential mergers between companies: the buyer may, and often does, require the seller to sign an NDA after concluding negotiations to ensure that the deal’s terms are not leaked to the market, which could impact investor confidence in the deal.

Another area where NDAs are common is in employment contracts and the protection of trade secrets. Senior or skilled employees working within sectors such as consumer electronics or pharmaceuticals may be required to sign NDAs before moving to rival firms. This can prevent an ex-employee from sharing valuable intellectual property with a firm’s rivals that it might use to stay competitive without legal recourse.

NDAs are also useful in employment on an individual level. In the competitive world of start-ups, sharing your million-dollar idea with the wrong person without some kind of legal protection could end up being a costly mistake. Such an irony is probably not lost on the internet entrepreneurs Tyler and Cameron Winklevoss, who in 2011 unsuccessfully sued Mark Zuckerberg for allegedly stealing the idea that eventually became Facebook.

What these examples highlight is the growing importance of information in the modern marketplace. The use of NDAs has risen to accommodate the increasing demands on companies and entrepreneurs to protect their information assets.

The Negatives

However, there are also significant negative issues surrounding the use of NDAs in the workplace.

As initially noted, NDAs have recently been highlighted in the news as a tool used by the wealthy and powerful to silence victims of sexual harassment. This was discussed by the Court of Appeal in the case of ABC and others v Telegraph Media Group Ltd [2018], where the claimant was successful in suppressing the Telegraph’s story about claims against them by means of injunction. But for Labour peer Lord Hain’s invoking of parliamentary privilege to reveal that the claimant was Sir Philip Green – as discussed previously for Keep Calm Talk Law here – his actions would have remained anonymous.

This case raises wider questions concerning the ability of those with power, wealth, and influence to engage in inappropriate conduct and emerge scandal-free. Another area where this rings true is in the suppression of professional and corporate misconduct. Employees or individuals who discover evidence of corporate misconduct and attempt to report it to higher ups, industry regulators or the press can be pressured into signing NDAs under the threats of losing their jobs, facing expensive legal action, or the offer of large severance packages.

This was recently made clear when the Guardian revealed that 48 British Universities had forced 3,722 ex-employees over the last 5 years to sign NDAs known as “compromise agreements” in order to accept their severance payments. That organisations ranging from large companies to universities, and even the government, frequently utilise NDAs emphasises their widespread use throughout almost every area of business and the public sector.

Such broad use of NDAs has significant implications for transparency and accountability. While there are definite positives for using them within the business world, there must be clear limits to the use of NDAs outside it: the ability for powerful organisations or individuals to use legal rights to silence criticism or suppress information is hard to square with the right to freedom of speech.

Non-Disclosure Agreements and the Common Law

While most press organisations and many individuals have taken a firm stance against the wide use of NDAs, the courts have remained more circumspect. In the case of Attorney General v Guardian Newspapers (No. 2) (‘Spycatcher’) [1990], Lord Goff set out three limiting principles to define the rights of confidentiality in respect of their breach. These were:

  1. That the principle of confidentiality only applies to information to the extent that it is confidential (i.e. if already in the public domain, it is not confidential).
  2. That the duty of confidence contained within an NDA does not apply to useless information or trivia.
  3. That, although the law holds a baseline view that there is a public interest to protect and preserve confidences, this public interest may be outweighed by a countervailing public interest that favours disclosure.

The third principle is the most important, as it suggests that the Courts’ approach to NDAs is to balance the relative importance of the confidential information with its disclosure. This principle was applied in HRH the Prince of Wales v Associated Newspapers Ltd [2006], which the courts regard as the leading authority relating to the publication of information obtained through the breach of an NDA.

In this case, which concerned press publication of Prince Charles’ infamous ‘Black Spider’ memos, the Court of Appeal ruled in favour of Prince Charles. They dismissed the appeal on the grounds that he had suffered a breach of confidence because of the nature of the information breached, as well as the relationship of confidence (the NDA) under which it was received.

The Court of Appeal later referred to these judgements in ABC and others v Telegraph [2018], where it acknowledged the importance of freedom of political debate, expression and the press, but ultimately ruled in favour of the claimant, Sir Philip Green. This seems to suggest that the Courts are currently more inclined to favour the preservation of confidentiality agreements, but the reasons the Courts gave are more mixed. They argued that the initial High Court judgement had ignored several important factors. These included:

  1. The important role of NDAs in the consensual settlement of disputes.
  2. That employees themselves may wish to retain confidentiality.
  3. The fact that disclosing the information could cause “immediate, irreversible and substantial harm” to the claimant’s businesses due to adverse customer action.

The contrast between these “countervailing factors” and the Court’s acknowledgement of the importance of freedom of the press, political debate, and expression show that it is unclear how the Courts will interpret NDAs in the future and whether they will uphold them.

However, these cases in themselves are problematic because they only assess NDAs from the perspective of a breach followed by media publication. They do not give a clear indication of how the Court might consider NDAs that relate to their more mundane uses within the business world.

The Future of Non-Disclosure Agreements in the UK

On the other hand, in the wake of ABC and others v Telegraph, the Solicitors Regulation Authority (SRA) has provided some guidance relating to how the use of NDAs should proceed in future. In a recent news release, the SRA stated that it had “warned law firms that NDAs should not be used to prevent the reporting of professional misconduct.”

This suggests that the use of NDAs to stifle victims of inappropriate workplace behaviour is coming to an end. As Paul Philip, the Chief Executive of the SRA said, “the public and the profession expects solicitors to act with integrity and uphold the rule of law. And most do. NDAs have a valid use, but not for covering up serious misconduct and in some cases potential crimes.”

The regulator’s comments show that there is strong support for cracking down on the use of NDAs for such purposes, but it is not clear how the SRA plans to police the use of NDAs for inappropriate conduct, and the only guidelines it has given are from a small warning notice. This notice states that failure to comply “may lead to disciplinary action”, but specifies nothing beyond that.

This suggests that while there is a lot of public will to police NDAs, the reality is that we do not know how the SRA will police them or what kind of enforcement measures will be put in place against law firms and practitioners that disregard the warning notice. In this sense, how law firms should approach NDAs is still very much a developing space.

Conclusion

There is a consensus that NDAs are unethical in the sense that their suppressive elements provide a mechanism for the wealthy and powerful to get away with objectionable conduct without being held accountable.

However, this approach is too simplistic. NDAs have been shown to have just as many practical uses that can balance out their more sinister aspects and the Courts agree. They have found that it is important to carefully weigh the public interest in publication of confidential information against the private interest in maintaining that confidence. In recent major cases, and most notably in Sir Philip Green’s recent case, the Courts have affirmed the importance of freedom of speech but have ultimately favoured maintaining confidentiality.

However, while the SRA has shown a firm commitment to pushing back against the use of NDAs to suppress professional misconduct, the extent to which it is willing to punish law firms and solicitors that flout its new standards remains unclear.

These outcomes highlight the difficulty in finding a balance around how NDAs should be used, policed and reported. On the one hand, they present tangible benefits to businesses and other organisations, but on the other they could be misused to cover up inappropriate conduct. While the SRA’s warning notice to law firms shows that they are willing to take action against practitioners that facilitate professional misconduct, whether this is enough to prevent further misconduct is uncertain.

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Tagged: Contract Law, Employment Law, Sexual Offences

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