NDAs in the Channel Islands – Enforcement, Limitations and Ethical Considerations

Non-disclosure agreements (NDAs) are not new and have been used in commercial agreements in the Channel Islands for many years. They are frequently found as standalone agreements between two businesses where one is providing the other with access to confidential information or trade secrets. However, in the employment context employees rarely enter into standalone NDAs (outside of a business sale) and instead confidentiality clauses are found in employment contracts and in settlement/compromise agreements used when the employment relationship ends.  

A well drafted NDA can benefit both the employer and the employee, particularly upon termination of employment. Many employees will be grateful to know that whatever happened will not follow them into future employment. Similarly, an employer will be concerned for its reputation and the stability of the workforce, particularly if it has a culture of not using compromise agreements to exit employees. Without an NDA in the settlement agreement the employer may well be unwilling to sign up to it. This would leave the employee with the choice of either bringing a claim in the Employment and Discrimination Tribunal, with all its attendant stress and uncertainties, or walking away from that claim.

However while NDAs can be useful, not all NDAs found in the employment context are enforceable.

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2017 – Things Changed

For a long while NDAs featured as a relatively uncontroversial and standard clause in settlement agreements. However in 2017 allegations emerged about film producer Harvey Weinstein and his inappropriate use of NDAs to prevent those he harassed or abused from speaking publicly about his conduct. The NDAs that his legal team used were particularly wide-ranging and prevented the victims from speaking to not only the police, but also stopped them obtaining legal advice or even speaking to medical professionals. This silencing had profound and significant consequences for the victims concerned who suffered substantially as a result. The ensuing public and political backlash manifested in the #MeToo movement and in inquiries and reports by the Equalities and Human Rights Commission (EHRC), the Women and Equalities Commission (WEC) and by the UK Government. Taking into consideration the recommendations by the EHRC and the WEC, the UK Government has committed to introducing legislation to regulate the use of NDAs in the employment context but, due to the absence of Parliamentary time, this legislation seems to essentially be on hold.  

The responses by the EHRC, WEC and the UK Government do not have any direct effect on events in the Channel Islands so the question is how does this affect the practice and use of NDAs here? As in the UK, enforcement of an NDA will be via the courts, with the applicant either seeking an injunction or claiming damages. When exercising its discretion to grant an injunction or award damages the Royal Courts in both Guernsey and Jersey have regard to the position taken in the UK. There are also regulatory implications for lawyers advising on NDAs, considered below.

The Solicitors Regulatory Authority (SRA) and the Law Society, which regulate English solicitors, have issued warnings and guidance which immediately impacted the work that solicitors could do on NDAs. A significant number of practising lawyers in the Channel Islands are English solicitors and so are regulated by the SRA, including many who have gone onto also qualify as either Jersey or Guernsey advocates. So the position taken by the SRA and the Law Society binds many lawyers practising locally.

So what can an NDA do?

As in the UK, the laws of Guernsey and Jersey respect the distinction between (a) information which is a trade secret and so is protected by the implied duty of confidentiality, even after termination of employment (for example secret processes or special methods of construction) and (b) 'mere' confidential information. Such mere confidential information is only confidential during the course of the employment and for it to remain confidential after termination an appropriately drafted contractual confidentiality clause is required. 

Settlement agreements in the Channel Islands generally include an express confirmation that the confidentiality clause in the employment contract continues to apply after the termination of employment. It is entirely legitimate for the business to seek to use the settlement agreement to reaffirm and protect its trade secrets and properly confidential information. Provided that the original contractual confidential information clause (found in the pre-existing employment documentation) is appropriately drafted then this reaffirmation is an effective way to protect the business, particularly where there is a risk of the employee claiming constructive dismissal or alleging breach of contract.

The agreement will generally include confirmation by the parties that they have kept and will keep the existence and terms of the settlement agreement confidential save for disclosure to their spouse/partner (in the case of the employee only), their professional advisors, the GFSC/JSFC, relevant tax authorities or as required by law. It is rare for a settlement agreement used in the Channel Islands not to have NDA type clauses or to include only a limited or restricted version. It is also relatively rare for a settlement agreement to have tailored or bespoke clauses.

It will almost always be legitimate to insist on including a clause in the settlement agreement that requires the parties to keep confidential the amount of the settlement payment or other key settlement terms (such as an apology in discrimination cases).

Imposing a blanket ban on discussing the circumstances of the individual's exit is unlikely to be reasonable or acceptable. Evidence has shown that silencing individuals where there has been an allegation of sexual harassment has a significant impact on the employee's ability to obtain effective medical treatment, their recovery and finding future employment.  The difficult situation faced by the employee is exacerbated if there is an ambiguity over what the individual is able to say to people who may already know about facts. It is essential that the NDA should not be oppressive.

Employers should think about the practical aspects of having effective settlement arrangements and consider realistic levels of control over what is said by the parties. In addition to the standard carve-outs referred to above (spouse, professional adviser, tax, GFSC/JFSC, required by law), the NDA should clearly allow the individual to speak to their medical professionals and any relevant regulatory body. In some cases carve-outs allow the individual to speak to friends, particularly where those friends may already be aware of the circumstances, or support groups or maybe even, exceptionally, at public speaking events (although including some limitations about what exactly is disclosed). 

Many NDAs include a prohibition on making derogatory statements and there is nothing intrinsically wrong with these clauses. However care needs to be taken to ensure that the carve-outs agreed in relation to the confidentiality clauses also apply to derogatory statements, particularly in respect of medical treatment.

Limitations imposed by regulators

Where an SRA regulated lawyer is involved then if the lawyer assists in the inappropriate use of an NDA then this amounts to breach of the SRA principles. Where the inappropriate NDA covers an allegation of sexual harassment then the actions by the lawyer can amount to a criminal offence, in that the lawyer has facilitated perverting the course of justice. While there a number of SRA considerations for the lawyer to keep in mind, the particularly relevant considerations mean that the NDA drafted by the SRA regulated lawyer must not prevent or seek to impede or deter the employee from reporting conduct to a regulator, making a protected disclosure, reporting an offence to law-enforcement agency or cooperating with criminal proceedings. The lawyer must not be involved in improperly threatening litigation to deter disclosure or proposing including terms known to be unenforceable. The lawyer must also have an eye on the surrounding circumstances so that the employee is not given the impression that disclosure is prohibited.

Where the employer is a regulated business then as a general rule attempts by that organisation to restrict communication with the relevant regulator is likely to be a breach of the regulatory rules and cause for concern by the regulator. For financial services businesses in the Channel Islands, the codes issued by the GFSC and JFSC require businesses to conduct their businesses with integrity and to deal with a regulator in an open and cooperative manner. An NDA that prevents a former employee or a financial services business speaking to the GFSC or JFSC will mean that the business has intentionally limited the information being passed to that regulator and will likely be a breach of the relevant code and be of concern to the regulator.

Similarly the data protection authorities in the Channel Islands will be concerned if an employer attempts to prevent or restrict an individual from exercising their data subject rights or from making a complaint to the relevant data protection authority. This is in contrast to the settlement of current claims or the withdrawal of current DSARs which can be made a condition of any settlement agreement.

Ethics

As a final consideration, use of NDAs can have an implication on the ESG considerations of the organisation. Use of NDAs can be at odds with the promotion of social factors such as having an open culture and addressing harassment or misconduct connected with work. If the business does want to include an NDA in settlement agreements then the employer should look to provide a substantial contribution towards, or better, cover in full the legal costs of the employee in getting proper advice as to the extent and effect of the NDA as this will help make the use of an NDA less oppressive and more ethical. If an employer has held itself out as having ethical and socially responsible workplace practices, being caught using an unduly harsh NDA could undermine that position and damage trust in its reputation.

We have advised financial service businesses and employees on the drafting, negotiation and enforcement of NDAs. If you have any questions about the use of NDAs in the Channel Islands then please contact one of the Walkers Channel Island Employment Team.


GUERNSEY
Sarah AshGroup Partner*T +44 (0) 1481 748 935sarah.ash@walkersglobal.com
Victoria PrattSenior CounselT +44 (0)1481 748 938victoria.pratt@walkersglobal.com

JERSEY
Daniel ReadSenior CounselT +44 (0) 1534 700 764daniel.read@walkersglobal.com
Jenny BruntonAssociateT +44 (0) 1534 700 766Jenny.Brunton@walkersglobal.com

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