Employers often assume that settlement agreements are confidential, but this is not always the case. Whether confidentiality applies will depend on the legal rules governing both the negotiations and the final agreement. Understanding these distinctions before starting the process is essential.
This article explains how confidentiality applies throughout the settlement process, from protected conversations and without prejudice discussions to confidentiality clauses, permitted disclosures and potential breaches.
Are settlement agreements confidential?
Settlement agreements and any preceding negotiations are not automatically confidential. Confidentiality relies on the process being handled correctly and appropriate clauses being included in the agreement. Simply telling an employee that discussions or the agreement itself are confidential is not enough, underlining the importance of seeking expert legal advice early.
Are settlement agreement negotiations confidential?
Employers can use protected conversations or without prejudice discussions to keep settlement agreement negotiations confidential. However, each has strict limitations and only applies in specific circumstances. Establishing which protection your communications may qualify for, and understanding its limitations, is therefore critical before entering into negotiations.
What is a protected conversation?
Under section 111A of the Employment Rights Act 1996, protected conversations allow an employer and employee to discuss ending the employment relationship confidentially before a dispute has arisen. This approach can be preferable for employers because, if an agreement is reached, it may avoid time-consuming disciplinary, capability or redundancy procedures.
However, section 111A generally only prevents these discussions from being used as evidence in ordinary unfair dismissal claims. It does not provide the same protection in claims involving discrimination, whistleblowing or another automatically unfair reason for dismissal. In these circumstances, details of the conversation may be used as evidence in legal proceedings.
If negotiations are successful, the terms will usually be recorded in a settlement agreement, formally bringing the employment relationship to an end.
What does without prejudice mean?
The without prejudice principle may protect communications where there is already an existing dispute and the discussions form a genuine attempt to reach a settlement. It can apply to a broader range of claims than protected conversations, including discrimination claims.
Communications covered by the principle cannot usually be used as evidence in an employment tribunal or other court proceedings. However, whether a dispute has arisen is not always clear-cut and will depend on the circumstances. Employers should therefore consider carefully whether their communications qualify for without prejudice protection. Simply marking correspondence “without prejudice” is not enough.
When can confidentiality protection be lost?
Confidentiality protection can be lost where an employer behaves improperly. This may include placing an employee under undue pressure, making threats or, in the case of without prejudice discussions, conduct amounting to unambiguous impropriety, such as fraud or blackmail.
What is a confidentiality clause in a settlement agreement?
A confidentiality clause is a contractual term that can be included in a settlement agreement to prevent either party from sharing specified information about the situation. These clauses are often referred to as non-disclosure agreements or NDAs.
Confidentiality clauses may cover:
- the terms of the agreement
- its existence
- the circumstances leading to the termination
- information shared during negotiations
- confidential business information
Confidentiality clauses should be proportionate and tailored to the situation, clearly defining what cannot be shared and any permitted exceptions, such as discussing the agreement with a family member. These clauses cannot restrict lawful disclosures to legal advisers, regulators, the police or other relevant authorities.
What should a settlement agreement confidentiality clause include?
A confidentiality clause should clearly set out:
- what cannot be shared
- whether the restrictions apply to the employer, the employee or both
- who the agreement can be discussed with
- any agreed wording about the employee’s departure
- how long the clause lasts
- any lawful or agreed exceptions
- the consequences of a breach
Confidentiality clauses need to be specific and tailored to the circumstances. Broad, sweeping restrictions can create uncertainty and may be unenforceable, so employers must consider carefully which details should be protected.
What disclosures cannot be restricted?
A confidentiality clause cannot prevent protected whistleblowing disclosures or stop an employee reporting suspected criminal conduct to the police, a regulator or another relevant authority.
It also cannot restrict disclosures required by law or prevent an employee from seeking legal advice. Any permitted disclosures, such as discussing the agreement with a family member, should be clearly set out in the agreement.
What happens if a settlement agreement confidentiality clause is breached?
If either the employer or employee breaches a confidentiality clause, the other party may have grounds to seek:
- damages for any loss caused
- an injunction to prevent further disclosures
- repayment of part of the settlement amount, where an enforceable clawback provision applies
If an employee breaches the clause before payment is made, the employer may be entitled to withhold some or all of the settlement amount where the agreement expressly makes payment conditional on compliance.
Our commercial litigation team advise employers on the most appropriate response to confidentiality breaches, taking swift, decisive action to protect their interests and reputation.
How Scott Bailey can help
Navigating settlement agreements and managing confidentiality can be complex. Our experienced employment solicitors guide employers through settlement discussions, ensuring sensitive information is protected and drafting clear, enforceable agreements that protect their business and reputation.
