One-sided settlement agreements

UK readers can’t have helped noticing that non-disclosure agreements (NDAs) are again in the news. A Court of Appeal ruling has attracted attention. Despite a court order to the contrary, the identity of the person involved has apparently been disclosed in the House of Lords under Parliamentary privilege.

According to a report by the BBC this week, the UK Prime Minister, Theresa May, has commented on the issue:

Mrs May said non-disclosure agreements, or NDAs, should not silence whistle blowers. She added the government would take action to make sure employees knew their rights.

Some – as yet unspecified – legislation to regulate this issue is promised. During a time of legislative paralysis caused by Brexit, IP Draughts is sceptical about the government’s ability to deliver on such a promise.

But, giving the government the benefit of the doubt, what might any new law say? Perhaps that obligations of confidentiality in settlement agreements made by individuals are unenforceable? Or unenforceable where there is a significant imbalance of power between the parties? Would such a law promote or hinder the settlement of disputes?

UCL professor, Richard Moorhead, has provided thoughtful commentary on this issue, eg on his blog. Earlier this week, he was invited onto the Today radio programme and then onto BBC TV programmes to discuss the matter.

IP Draughts’ instinctive view is that, if confidentiality obligations in such circumstances were unenforceable, it would reduce the number of settlement agreements. But whether it would reduce the number significantly is unclear. Sometimes, confidentiality will be a key issue for one or both parties. On other occasions, the key issue may be resolving the dispute and avoiding the cost, time and additional problems associated with litigation, so that confidentiality is merely a “nice to have”.

Although he hasn’t advised on harrassment allegations or their resolution, IP Draughts occasionally advises on the settlement agreements that employers ask their employees to sign when dismissing them, typically in return for a payment that exceeds the contractual entitlement. In the UK, these agreements (formerly known as compromise agreements) can protect the employer against future claims by the (ex-)employee if they are drafted widely enough and comply with statutory requirements. One of those requirements is that the employee obtains legal advice and provides a certificate to this effect from the lawyer.

Although the circumstances of these settlement agreements are different from those that are in the news, there are some similarities: they are entered into between parties of unequal power, and in return for a payment the party with less power gives up a wide range of future rights. Typically they include confidentiality obligations. From an employer’s perspective, it is usually the preferred option to keep the deal secret.

Originally, these settlement agreements were drafted with a view to avoiding future, employment-related claims by the employee, such as for discrimination or unfair dismissal. They provide a limited ‘safe harbour’ or exception to the general rule that an employee cannot contract out of their statutory employment rights. The agreements were sometimes a little lengthy because they listed all the different types of theoretical claim that an employee could bring under UK employment legislation. But apart from these lists, the agreements were relatively straightforward.

More recently, IP Draughts has noticed a trend to throw much more into settlement agreements, to tie the employee up in legal knots. A draft settlement agreement that IP Draughts recently reviewed seemed to acknowledge this, when it said:

…if this Agreement is only effective for the purpose of precluding the Employee from presenting particular statutory complaint(s) to an Employment Tribunal, then the particular statutory complaints to which this Agreement pertains is/are the Employee’s complaints of unfair dismissal, wrongful dismissal or discrimination.

This was a small sub-set of the types of claim that, elsewhere in the agreement, were stated to be waived by the employee.

In addition, this particular agreement had some rather strong obligations on the employee, eg:

  • non-compete obligations on the employee
  • obligations not to make subject access requests under data protection legislation
  • obligations to cooperate with the employer in any future UK or overseas regulatory or legal proceedings to which the employer was party
  • full disclosure obligations (similar to an utmost good faith obligation) that were not reciprocated by the employer
  • obligations not to make disparaging statements about the employer

The wording of some of the obligations was extremely dense and difficult to follow. For example, a sub-clause on tax liabilities was part of a single, longer sentence. The tax part of the sentence ran to 348 words and included multiple qualifiers, ifs, buts and provisos.

These types of agreement tend to be drafted entirely to protect the employer, and detailed negotation of the terms is not usually expected. Something has gone wrong when they are are as complicated and one-sided as this one. Personally, IP Draughts wouldn’t sign such an agreement for the low thousands of ex gratia payment that are typically on offer, but perhaps he is talking with the luxury of being a well-paid professional. He finds it difficult to believe that the original intention of the legislation which brought in compromise (now settlement) agreements was to facilitate extreme agreements of this kind.

Some lawyers take the view that their role is to provide maximum benefit to their client and if that means maximum disbenefit to the other party, so be it. Some clients require their lawyers to act in this way. While this approach has its place, IP Draughts agrees with Richard Moorhead that when one is dealing with individuals, and when there is an imbalance of power, ethical considerations may require a tempering of the “win as much as you possibly can, and without caring about the other side” mentality.

 

 

Leave a comment

Filed under Confidentiality, Employment

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.