Non-disclosure agreements – good, bad or just plain ugly?
Non-disclosure agreements (NDAs) are the flavour of the month, or perhaps a bad taste in the mouth. They have been attacked in the media as a tool for scoundrels to cover up their evil deeds, aided by unscrupulous lawyers. And yet, many reputable clients want them for entirely legitimate reasons. So, what’s all the fuss about?
The controversy came from the Court of Appeal decision in the case of ABC v Telegraph Newspapers (ABC is used to avoid naming the claimant). The decision granted an interim injunction restraining the Telegraph from publishing details of alleged sexist and racist bullying and abuse within two companies by one (then) unnamed senior executive.
Each alleged victim had signed an NDA within an overall settlement, including a cash payment, in return for dropping a court or tribunal claim. The press pretty unanimously condemned the decision with much comment that NDAs should be abolished.
I would never defend the sort of conduct alleged, and the use of five different NDAs relating to similarly unpleasant conduct against five alleged victims naturally generates outrage. But does that mean that NDAs are always wrong?
NDAs are frequently used in commercial negotiations, such as buying or selling a business, to allow confidential information to be given to the buyer without damaging the seller’s interests if a deal falls through. They are also used in contracts of employment or for services to protect the employer’s trade secrets. No one objects to this.
They are also used in all sorts of settlements of disputes, including between businesses, between companies and their former directors or between former partners. Usually, there is no scandalous or criminal conduct. Do you have a right of way over my land? Did your late delivery delay my building project? Should a company be wound up because the directors fundamentally disagree about a major investment? Most cases settle without going to a full court hearing. A commercial compromise is often far better than the time, expense and uncertainty of the full court proceedings. Neither party wants their dirty washing made public, so both sides are usually happy to agree that the settlement terms remain private. Terms are negotiated carefully; often one side secures better overall terms in return for conceding an NDA. This is perfectly legitimate.
The national press is not interested in most disputes, but we all live in a small world; clients prefer that their customers, suppliers, contacts and business rivals don’t know too much about their disputes or how they are resolved. Even when such agreements reach the press we usually hear that the dispute has been “settled for an undisclosed sum”.
In the Telegraph case the court balanced two competing principles under the Human Rights Act; freedom of expression against privacy and home life. Was it in the public interest to publish information allegedly obtained in breach of confidence? There is room for debate over where that balance should lie.
Vitally, this was an interim injunction, lasting only until a final hearing, which should take place as soon as possible. The court did not even consider whether the allegations were true or examine the circumstances in which the NDAs were made. After a full hearing, a court may allow publication, but not until then. It stressed that if it allowed publication before a hearing then the damage could cause possibly irreparable harm to the reputations of the companies and the individual. Jobs could be at risk if the public decides not to buy goods from that company, with many innocent company employees affected. You do not hang the accused and then put him on trial.
It is in the public interest that legal agreements are upheld. If parties are free to pick and choose which parts of a contract they will keep then commercial chaos will follow.
There was no evidence that anyone had entered NDAs under duress. Each alleged victim had independent legal advice and negotiated detailed terms.
Importantly, the NDAs themselves included terms allowing the parties to provide information relating to the dispute and the settlement to the proper authorities. NDAs often include such terms. Typically the parties expressly accept that a payment may have tax consequences, so the whole agreement may have to be disclosed to the Revenue. The Public Interest Disclosure Act positively protects certain “whistleblowing” where this involves, for example, disclosures of criminal offences, health and safety risks or dangers to the environment. A criminal cannot validly use an NDA to hide his crimes. If an NDA appears to prevent anyone from making a disclosure that would be protected by the Act then it is void. However the Act is limited as to which disclosures are protected; it may protect disclosure to, say, the police, but not necessarily to the Daily Telegraph.
The court also noted that two of the alleged victims supported the claimant in wishing to stop publication, and a third was neutral. No doubt they feared press intrusion and publicity.
The court weighed these factors against the undoubted public concern over sexual bullying in the workplace and the #MeToo campaign. A recent Parliamentary select committee has reported on this issue saying that the use of NDAs lacks supervision and oversight. It recommended that their use to restrain protected whistleblowing in such cases should be an offence; not merely that the NDA would be void. It remains to be seen whether Parliament will take up that idea, or extend it beyond sexual harassment to, say, the confidential details of a boundary dispute. Even here the recommendation covers disclosure to the police or similar, not the press.
In the event the “senior executive” has been named under parliamentary privilege (a completely different topic) then the decision is undermined. We shall see whether the case goes to a full hearing. The damage, deserved or not, has been done, so a final injunction will be useless, unless perhaps there are further revelations to be made or restrained. The claimants may still seek compensation for breach of contract. Perhaps that part of the case will be settled for an “undisclosed sum”!
If you would like to include an NDA within a dispute settlement, or would like advice over enforceability of an existing NDA or any other commercial dispute, then contact me directly via stephen.allen@GAsolicitors.com or call 01752 203500.
If you would like advice regarding NDAs in contracts of employment then speak to our employment team by calling 01752 203500. If you would like advice regarding NDAs in a commercial transaction then speak to a member of our company commercial team by calling 01752 203500.
Stephen Allen, partner