The Al Fayed Allegations – Is Further Regulation of Workplace NDAs Necessary? 

By Chris Hadrill 

Over the last decade, the use of workplace NDAs have come under increasing scrutiny as allegations of the abuse of these types of agreements has come to light. In this article we examine why workplace NDAs are used, how they can be abused, and what potentially can be done to prevent the misuse of these agreements. 

What is a workplace NDA? 

A workplace settlement agreement (also colloquially referred to as a “workplace NDA”) is a contract between, generally, an employer and an employee, where the employee agrees to settle particular claims against the employer in return for the receipt of agreed benefits.  

These settlement agreements normally, although not always, also include clauses which:  

1. Compel the employee to maintain confidentiality about the agreement, and the circumstances giving rise to the agreement, and,  
2. Prevent the employee from making derogatory comments about their employer. 

What are the typical problems with the use of workplace NDAs? 

There are many benefits to the use of workplace NDAs. They allow for the swift, simple and cost-effective settlement of employment disputes, limit the liability of employers, set out clear terms that both parties can rely on, and can take pressure off embattled Employment Tribunals. 

There are, however, equally significant issues with the use of workplace NDAs – first, is the large disparity between the power and resources of employers and employees, leading to potentially unfair outcomes for employees; and second, is that, principally, the confidentiality clauses in workplace NDAs effectively ‘gag’ employees. 

Employees who have signed settlement agreements can often believe that they have an absolute obligation to maintain confidentiality when it comes to the background of their dispute and the terms of their agreement, where this obligation is qualified (section 43j Employment Rights Act 1996 is very clear as to how far the power of a confidentiality clause can extend – further explained below). Equally, sometimes employees understand their obligation, but fear that their powerful and rich former employers might threaten to sue them, or actually sue them, even if the employee lawfully exercises their right to disclose certain information under the terms of the settlement agreement.  

This has led to situations were powerful employers (Weinstein, Odey) are alleged to have prevented employees from disclosing potentially criminal misconduct to the police or breach of regulatory obligations to the relevant regulators 

How are workplace NDAs regulated? 

Settlement agreements have to comply with section 203 of the Employment Rights Act 1996: they have to be in writing; they have to confirm the particular claims that are being settled; and the employee has to obtain independent legal advice on the terms and effect of the settlement agreement.   

Section 43j of the Employment Rights Act 1996 states that confidentiality clauses in settlement agreements will not be valid to the extent that they seek to prevent employees from making ‘protected disclosures’ (e.g. complaining about a breach of the criminal law to the police or alleging a breach of regulations to a regulatory authority).  

The Solicitors Regulatory Authority (“SRA”) has also produced a number of pieces of guidance for solicitors as to how workplace NDAs should and should not be used. 

Mohammed Al Fayed 

Since the death of Mohammed Al Fayed, former owner of Harrods and Fulham Football Club, in 2023, a flood of allegations have emerged, mainly from former employees, that they had been subject to sexual misconduct at work from Al Fayed and his acquaintances.  

It has also been reported that at least some of these complainants signed workplace NDAs, and that the people who signed the NDAs felt compelled to keep their experiences confidential because of fear of legal repercussions if they breached the agreement or because they misunderstood their confidentiality obligations. Al Fayed was, of course, incredibly litigious while he was alive, and the fears of these employees is, at the least, understandable. 

Is there a case for the further regulation of workplace NDAs? 

There are clear public policy advantages to the use of settlement agreements in the workplace (most of these have been outlined above). Hence, the banning of the use of settlement agreements (as has been called for from time to time) would likely be counter-productive as it would result in more disputes being funnelled through a struggling Employment Tribunal system. Moreover, it is likely to be expensive, lead to time-consuming arguments between employers and employees, and increase reputational damage to both parties. 

Rather than banning settlement agreements themselves (as the Government has already rejected), it would probably be sensible to look at the root cause of the concern when using such agreements: the confidentiality clauses.  

There have been calls to ban confidentiality clauses in settlement agreements, but that probably does not make realistic practical or commercial sense as a business’ reputation is an important asset to it. – it makes little sense to pay a potentially sizeable sum to settle an employment dispute, only to leave a likely-disgruntled former employee with a free licence to damage the employer’s reputation. 

An alternative remedy could be to further educate employees on the purpose and effect of confidentiality clauses in settlement agreements, and what they can and can’t do. Employees, for example, could sign a new declaration in a settlement agreement confirming that they understand the proper effect of the confidentiality clause, and that they have been advised on such (such a declaration would be similar to the certificates of advice that are commonly completed on settlement agreements to confirm that the employee has received appropriate legal advice on the agreement).  

Solicitors could also be asked to confirm within the settlement agreement that they have appropriately advised the employee (their client) on the terms and effect of the confidentiality clause. Ultimately, however, an understanding of the proper use and effect of confidentiality clauses in a settlement agreement will almost always be hostage to how employers try and enforce these clauses – the threat of potential legal action will often be enough to deter stressed and vulnerable employees from exercising their lawful right to, for example, make a complaint to the police that they have been sexually assaulted.  

Greater emphasis therefore can and should be placed on the obligation of solicitors advising their corporate clients on what actions are appropriate, and inappropriate, when it comes to enforcing the terms of workplace NDAs – as with SLAPPs, actual or threatened legal action to suppress the disclosure of information of public interest is not, and cannot be, lawful (or in compliance with the SRA Code of Conduct).

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