The Team

Non-disclosure Agreements - Legitimate Business Tool or Gagging Mechanism?
04/03/2019
Non-disclosure Agreements - Legitimate Business Tool or Gagging Mechanism?

Non-disclosure agreements have come in for considerable criticism in the recent past, not least of which is their perceived use as a “gag” preventing one of the parties to an agreement publicising certain circumstances or contractual arrangements with the other party.

 

The recent disclosure of their use to suppress evidence of bullying, abuse and sexual harassment came to the fore in the case Sir Philip Green is fighting in High Court in London. In this case, Sir Philip Green argued that the arrangements between himself and certain former employees with whom he was involved in the litigation should not be publicised because of the non-disclosure agreement with the employees. At the outset of the case, an injunction had been granted to Green preventing the press from naming him or disclosing details of the case.

 

Sir Philip Hain, rightly or wrongly, identified Sir Philip Green as the well known person involved in the case and was protected from contempt of court or breach of the injunction by parliamentary privilege.  The use of parliamentary privilege for such a disclosure would be interesting to discuss but beyond the scope of this report.

 

It is understood that the claims made by those involved in the litigation with Green claim that the non-disclosure agreement was used to prevent them disclosing the fact that they had been bullied, abused or otherwise sexually harassed by Sir Philip Green himself.

 

As an aside, a non-disclosure agreement was also used by President Trump to silence claims made by Stephanie Clifford (Stormy Daniels) that she had sex with Donald Trump before he ran for President. Whether the claims are true or not we may never know but we do know that Ms Clifford was paid over $130,000 for her silence. Despite trying to overturn the agreement, she has, so far, been unsuccessful in doing so. It is clear from Ms Clifford’s efforts to have the agreement overturned that the American courts view the non-disclosure agreement as perfectly legitimate. There’s no claim that it was used for illegal purposes but simply to prevent disclosure of an act between two consenting adults in exchange for a sum of money. There are arguments about whether the timing of the payment could have constituted a breach of American electoral law but that is a very different argument as to whether or not the non-disclosure agreement is legally binding.

 

As a result of the Sir Philip Green case, the UK Government has launched a Consultation into the use of confidentiality clauses to suppress disclosure of bullying and abusive behaviour or sexual harassment. You can click here to view the Consultation document.

 

The UK Government has also stated that, in its view, individuals who are asked to sign a non-disclosure agreement receive independent legal advice. Currently, when a Settlement Agreement between and employer and employee is required, it will only be entered into after the employee has had independent legal advice. It would seem that the UK Government are likely to include this requirement as a statutory obligation.

 

Whilst it is right and proper to outlaw the use of such agreements for illegal purposes, non-disclosure agreements have an important place in business and commerce. They are not only used in employment situations. Where they are used in employment situations, they are usually used to ensure that confidential information held by a company isn’t sold or given to competitors or that financial or sales information or contacts are kept confidential when a senior employee or sales executive leaves to join a competitor (and usually the terms of a restrictive covenant will also come into play here).

 

Non-disclosure contracts can also be used between companies who wish to collaborate on a project or who wish to enter into discussions about a joint venture to ensure that should the collaboration fail, any confidential information shared by the parties isn’t then disclosed to third parties to the detriment of one or more parties to the non-disclosure agreement.

 

One of the critical points about the use of non-disclosure agreements is that they’re used for legitimate purposes and not used to hide or prevent disclosure of illegal activities and the UK Government must be very careful it doesn’t outlaw perfectly legitimate commercial agreements.