Mum’s the word: examining the use of confidentiality clauses in settlement agreements

There has been much discussion recently about the ‘motherhood penalty’, a term used to describe the specific disadvantages that mothers encounter in the workplace. These challenges can encompass pay issues, perceived incompetence, damage to career progression, and problems on return to work. In a study published last year by campaign group Pregnant then Screwed, 52% of the mothers surveyed reported that they had experienced workplace discrimination. 

In employment contracts, confidentiality clauses only seek to prevent the unauthorised disclosure by the employee of confidential information belonging to the employer, both during employment and following termination, for as long as the information is not in the public domain. However, the confidentiality clauses in settlement agreements usually go further than this.

Statutory employment claims such as claims for unfair dismissal, discrimination, whistleblowing, etc. can only be validly compromised by an employer without the involvement of ACAS if the employee enters into a formal settlement agreement, having first taken independent advice. Settlement agreements usually contain confidentiality clauses which prevent the employee disclosing (other than as necessary to the police or any court or public authority) information about the background to the settlement agreement, its existence or its terms.  Although there is something of a perception that employees are often asked to enter into separate NDAs in such circumstances, this rarely happens in England and Wales and the reference to NDAs in this context is therefore usually to the confidentiality clauses in a settlement agreement.

Usually, these are provisions of mutual confidentiality and the employer therefore also agrees not to disclose the terms of the settlement agreement, the background to it, or its existence, except for good business reasons and to comply with its obligations. This means that the employer is not free to discuss these matters with any future employers, enabling the employee to move on from a dispute.

The employee’s right to discuss the events which have led to the settlement agreement is usually also fettered by an obligation not to say anything derogatory about the employer or its employees (although this obligation also does not prevent the employee raising matters with a regulator or the police). However, in exchange, the employer usually agrees:  

• not to authorise anyone to say anything derogatory about the employee;
• to take reasonable steps to avoid anyone saying anything derogatory about the employee; or
• to instruct particular individuals not to criticise the employee.

Just like the rest of a settlement agreement, confidentiality and non-derogation clauses can and should be negotiated. The reality is that, if they are well drafted, they often benefit the employee as well as the employer, because: 

1. employers will often be prepared to settle at an earlier stage than they otherwise would and to pay a premium in order not to have to make any admission of wrongdoing or run the risk of a finding against them, particularly if the employee also agrees not to make the facts known to the general public (even though they know they cannot prevent the employee reporting relevant matters to a regulator or to the police); and
2. these clauses reduce the likelihood of future employers becoming aware of the dispute and holding this against the employee (which employers are not supposed to do but in practice sometimes do). 

Although confidentiality clauses often went too far in the past there has been guidance for some years (from the Equality and Human Rights Commission, ACAS and the Solicitors Regulation Authority) making it clear that they should not stop the employee reporting an illegal act, or making a protected disclosure. Most settlement agreements over the last few years have contained wording to this effect. This will shortly be enshrined in law by virtue of the Victim and Prisoners Act 2024.

Organisations such as Pregnant Then Screwed believe that NDAs and confidentiality clauses are still being misused and report that many of the working mothers who have signed agreements containing such clauses have regretted their decision afterwards and consider that this has affected their mental health. Although the employee could elect to breach the confidentiality obligation in such circumstances, this would probably mean having to repay at least part of the consideration received under the settlement agreement and might have other consequences, usually at a point when the employee is no longer able to pursue any claims.  

Part of the problem is that, because they do not want to fund a dispute against themselves, employers usually cap the contribution they are prepared to pay towards the employee’s costs of taking advice on a settlement agreement in a way that prevents the advisor going into any great detail. However, the most recent guidance issued by the Solicitors Regulation Authority states that:

• NDAs should not routinely be used. Whether an NDA is needed should be carefully considered taking into account the specific circumstances of the case;
• Firms should ensure that all those dealing with NDAs have adequate support and training on the issues covered in the warning notice;
• Those dealing with NDAs should not become over-reliant on NDA templates and complacent about the risks. Templates should always be specifically tailored to the individual circumstances of each case;
• Time limits should always allow sufficient time to properly take instructions, advise and respond. Unreasonable time limits should be challenged, whether acting for an employee or employer;
• Acting in a client's best interests includes being very clear from the outset about the potential limitations of the advice that can be offered because of any funding constraints. Whatever the level of funding, clear advice should always be given about what the NDA does and does not permit the client to do and a record of the advice should be kept; and
• Reporting concerns is key to maintaining trust in the profession. In the first instance, concerns about an unethical or unenforceable clause in an agreement with an NDA should be raised with the other side. Solicitors and firms should report any serious concerns in accordance with the SRA's guidance on reporting and notification obligations so that they can be investigated.

If you need advice on a settlement agreement or on settlement negotiations in an ongoing case, you can get in touch with Russell-Cooke’s employment experts by contacting our new enquiries phone line, or filling out our online form. 

Nina Stevens is a trainee in the employment law team.