NDAs: How to Use Employment Non Disclosure Agreements

A Non-Disclosure Agreement (NDA) is a legal contract used to protect sensitive or confidential information from being shared or misused. NDAs are commonly used by UK employers when disclosing proprietary business information to employees, contractors or third parties. The agreement sets out the terms under which information can be shared and the restrictions on its disclosure to others.

NDAs are particularly useful during business discussions, employment relationships, mergers or when working with external consultants.

Non disclosure agreements (NDAs) and confidentiality provisions in the employment context have generated plenty of publicity over the past few years. Much of this publicity has been negative, for example, the exposure by the #metoo campaign of the use of NDAs to cover up sexual harassment in certain workplaces and as a result, the government has announced that it will be making changes to the law surrounding the use of NDAs and their content.

Employers have to ensure their NDAs are clear and proportionate to be enforceable under UK law. Overly broad or unreasonable clauses could make the agreement invalid or unenforceable in court.

Employers must also consider reputational risks. Misusing NDAs to silence employees, particularly in cases of harassment or whistleblowing, can lead to public scrutiny, legal challenges, and breaches of employment law. The Equality Act 2010 protects employees’ rights to report discrimination, and NDAs cannot override such protections.

In this article, we look at the current position relating to NDAs and how they can be used to protect legitimate business needs, such as trade secrets or commercially sensitive data.

 

What are NDAs in an employment context?

 

In an employment context, a Non-Disclosure Agreement (NDA) is a legal contract used to protect confidential information shared between an employer and employee. NDAs are often included in employment contracts, settlement agreements, or standalone agreements to ensure sensitive information is not disclosed outside the organisation.

Employers typically use NDAs to protect trade secrets, business plans, client lists, financial data, or other proprietary information. NDAs may also be used as part of settlement agreements following the end of employment, often where disputes or grievances are involved.

While NDAs can legitimately safeguard business interests, their use has come under scrutiny in cases where they have been used to silence employees from raising concerns about unlawful behaviour, such as harassment, discrimination, or whistleblowing. It is important to note that under UK law:

 

• NDAs cannot prevent individuals from making protected disclosures (whistleblowing) under the Public Interest Disclosure Act 1998.
• NDAs cannot prevent employees from reporting a suspected crime to the police or seeking professional support, such as from regulated legal or healthcare professionals.

 

Employers should ensure NDAs are used appropriately, clearly drafted in plain English, and do not infringe on employees’ legal rights.

 

Law on NDAs

 

Under current UK law, there are specific situations in which the terms of a Non-Disclosure Agreement (NDA) or confidentiality clause will not apply, regardless of its wording. These are considered lawful disclosures, and employees retain the right to disclose information in certain circumstances:

 

• When making a protected disclosure under the Public Interest Disclosure Act 1998 (whistleblowing).
• If disclosure is required by law, such as providing evidence in court.
• Where disclosure is permitted for reasons of public policy, provided it is genuinely in the public interest.

 

To ensure enforceability, NDAs are more likely to be upheld if they include express wording stating that the employee may disclose information:

 

• If required to do so by law.
• To a regulatory body.
• To the police or a healthcare professional.
• To their legal adviser.
• If the information is already public.

 

NDAs remain a lawful and legitimate tool for protecting confidential and proprietary information in employment contexts, such as trade secrets or commercially sensitive data. However, concerns have been raised about their misuse, particularly where confidentiality clauses have been used to deter individuals from reporting unlawful behaviour, such as harassment or discrimination.

In response to these concerns, the UK government launched a consultation in 2019 to review the use of confidentiality clauses and address unethical practices. Proposed changes include:

 

• Introducing clear legal limitations to ensure NDAs cannot prevent disclosures to the police or regulated professionals.
• Requiring employers to provide plain English explanations of NDA clauses, including their scope and limitations, in settlement agreements and employment contracts.
• Ensuring legal advice for employees covers the purpose and limitations of confidentiality clauses.
• Introducing enforcement measures to penalise NDAs that do not comply with legal requirements, such as additional compensation in tribunal cases.

 

Although no new legislation is yet in force, employers are encouraged to review their NDAs and confidentiality clauses to ensure compliance with current law and guidance. Employers should also ensure that NDAs are used appropriately and ethically to avoid legal and reputational risks.

 

When can NDAs be used with employees?

 

In employment, NDAs are generally found in the employee’s employment contract or in a settlement agreement between the employer and employee.

Often, non-disclosure clauses or confidentiality provisions are included in the employment contract between the employer and employee in order to protect technical information, trade and business secrets, client details and any other confidential information which an employee may discover during their employment. This can obviously be an extremely important element of the employment contract for an employer and employees will generally recognise the need for such provisions.

NDAs also form a crucial part of settlement agreements, in which employees agree to refrain from publicising their grievance or claim against an employer in return for a payment, thereby avoiding what could be costly, time-consuming and stressful litigation for both parties. The terms of the NDA commonly provide that the payment must be returned in the event of a breach of the NDA by the employee.

The non disclosure provisions usually relate to the terms of the settlement and the details of any relevant grievance. As a result, employers are able to minimise the risk of bad publicity and manage their reputation, while employees are often happy to walk away from the situation without having to resort to employment claims or litigation. Employees may also be keen to ensure confidentiality of the matter and it is common for mutual confidentiality provisions to be included.

Despite the mutual benefit to employers and employees that NDAs may bring, particularly in a dispute or employment claim scenario, it is in this area that many of the problems and negative media attention surrounding NDAs have arisen.

 

NDAs to protect commercially sensitive information

 

NDAs are an important risk management tool, protecting commercially sensitive information and trade secrets in a business context. In the UK, employers and organisations can use NDAs to ensure that confidential information is not disclosed to unauthorised parties, helping to safeguard their competitive edge and intellectual property.

To use NDAs effectively, employers must first identify the specific information they wish to protect. This typically includes trade secrets, proprietary processes, product designs, financial information, marketing strategies, client or supplier lists, and other sensitive business data. NDAs should be tailored to address the particular risks associated with the disclosure of this information, rather than using overly broad or generic terms.

NDAs must clearly define what constitutes “confidential information” and set out how the recipient can use this information. For example, the agreement should specify that the information can only be used for a defined purpose, such as evaluating a business opportunity or fulfilling specific contractual obligations. Employers should also outline the restrictions on disclosure, including who the information can be shared with (such as legal advisers, regulatory bodies, or relevant employees) and under what circumstances.

The agreement should include a clause on the duration of confidentiality. While some information, like trade secrets, may require indefinite protection, other commercial information might only need to remain confidential for a set period, such as one to three years. Employers should strike a balance to ensure the duration is reasonable and enforceable under UK law.

To strengthen enforceability, NDAs should clearly state the consequences of a breach. This may include legal remedies such as injunctions, damages for financial losses, or other reliefs available through the courts. Employers should ensure the terms are fair and proportionate to avoid disputes or claims that the NDA is unreasonable.

It is also important to manage the practical use of NDAs. Employers should ensure they are signed before any sensitive information is shared, such as in the early stages of a business partnership, negotiations, or collaborations. NDAs are also commonly used with employees who have access to trade secrets as part of their role, as well as contractors, consultants, or suppliers.

Finally, NDAs must be drafted in clear, plain English to ensure all parties fully understand their obligations. Employers should seek legal advice to ensure the agreement is robust, legally compliant, and tailored to their specific needs. By doing so, NDAs can be an effective and lawful tool for protecting commercial interests and trade secrets.

 

Enforceable or unenforceable?

 

A Non-Disclosure Agreement (NDA) can be a powerful legal tool for protecting confidential information, but its enforceability depends on how it is drafted and the circumstances in which it is used. For an NDA to be enforceable in the UK, it must be clear, fair, and reasonable while complying with established legal principles.

To make an NDA enforceable, it must clearly define the confidential information it seeks to protect. Vague or overly broad definitions are less likely to hold up in court, as they can be considered unreasonable or unfair. The NDA must also specify the purpose for which the information is shared and how the recipient is permitted to use it. For example, the agreement should state that the information can only be used for evaluating a business proposal or fulfilling certain contractual duties. Additionally, the NDA must set a reasonable duration for confidentiality, as indefinite restrictions on all information may be seen as excessive unless justified, such as in cases involving trade secrets.

An enforceable NDA must be entered into voluntarily by all parties. If an individual is pressured into signing, or if there is evidence of undue influence, the NDA may be deemed invalid. Furthermore, the agreement must comply with existing legal protections. For example, NDAs cannot be used to prevent lawful disclosures, such as whistleblowing under the Public Interest Disclosure Act 1998 or reporting criminal activity to the police. Similarly, an NDA cannot stop someone from discussing concerns with regulated professionals like legal advisers or healthcare practitioners. Including clauses that attempt to silence lawful disclosures will likely make the NDA unenforceable.

An NDA may also be invalid if it is unreasonable in scope or purpose. For instance, an agreement attempting to restrict information that is already public knowledge or commonly known within the industry is unlikely to be upheld. NDAs that impose unfair or excessive restrictions on an individual’s ability to work, such as overly broad non-compete clauses, may also be unenforceable.

To ensure enforceability, NDAs should be written in clear, plain English so that all parties fully understand their rights and obligations. Employers must avoid ambiguity and ensure the terms are proportionate to the interests being protected. If an NDA is found to be oppressive or against public interest, such as preventing disclosures of harassment or unlawful conduct, it is unlikely to be enforced.

In summary, for an NDA to be enforceable, it must strike a reasonable balance between protecting confidential information and respecting individuals’ legal rights. NDAs that are clear, proportionate, and used for legitimate purposes are far more likely to hold up in court. In contrast, agreements that attempt to silence lawful disclosures, impose unreasonable restrictions, or are poorly drafted risk being deemed unenforceable. Seeking legal advice during the drafting process can help ensure the NDA meets these legal requirements.

 

Common pitfalls of employee non disclosure agreements

 

Non disclosure agreements should only be used to protect information which genuinely requires protection. They are not a way to disguise or conceal improper workplace behaviour, which should be dealt with promptly, appropriately and consistently.

Similarly, NDAs should not be used to deter or threaten employees from making lawful disclosures. It is important that this be borne in mind in respect of the entire NDA and not just the specific non-disclosure wording. For example, a clause dealing with the repayment of any amounts paid to the employee in the event of a breach of the NDA may indirectly be perceived as such a deterrent or threat.

Some NDAs are drafted extremely widely, using legalese rather than plain English. Permitted disclosures, such as those mentioned above, may not be clearly set out. Employees may not fully understand what they are signing and may be confused as to whether the NDA is enforceable or not against specific disclosures. This could result in the NDA being void.

Employers should also be mindful of the actual need for an NDA. Often, employees are asked to sign an NDA as a matter of course, with little consideration as to whether such a document or provision is really needed in the situation. There will be little or no benefit to an employer requesting that an employee who has no dealings with detailed technical information or client details sign an NDA.

In terms of the actual usefulness of an NDA, employers should be aware that simply the existence of an NDA may have potential reputational repercussions. When entered into for valid reasons, an NDA will hopefully discourage employees from publicising the information that the provisions are designed to protect but if an employee does breach the non-disclosure terms, employers should think carefully about whether bringing a claim for such a breach may have an adverse effect on their reputation.

 

Best practice for employers

 

Employers should carefully consider each situation on an individual basis to determine whether a Non-Disclosure Agreement (NDA) is genuinely necessary. NDAs should not be used as a default solution and should only address the specific risks they aim to mitigate, rather than attempting to cover all possible scenarios.

It is essential to stay up to date with new legislation surrounding NDAs, including its terms and whether it will apply retrospectively to agreements already in place. Employers should obtain a full legal review of any NDA or non-disclosure provisions to ensure they do not, either directly or indirectly, deter employees from making lawful disclosures or threaten adverse consequences if they do so.

Clearly outline the situations in which the NDA will not apply. For example, exclusions should include whistleblowing claims, or where disclosure is required to healthcare professionals, regulatory authorities, the police, or others. The agreement should also make clear who the employee can make disclosures to, including close family members.

Employees asked to sign an NDA or settlement agreement must be fully informed of, and understand, the circumstances in which the NDA will not be enforceable. Employers should consider covering, or at least contributing to, the cost of the employee’s independent legal advice to ensure they are appropriately supported. Additionally, employees must be given sufficient time to review and understand the terms of the NDA. Rushing individuals into signing could undermine the validity and fairness of the agreement.

Once the NDA has been finalised, employers should promptly provide the employee with a signed copy of the document for their records.

To ensure NDAs are handled properly, training and support should be provided to HR staff, managers, and other relevant personnel who may need to deal with NDAs or settlement agreements. It is crucial they understand when an NDA is appropriate and recognise situations where lawful disclosures can be made.

Employers should also implement and enforce a zero-tolerance policy towards harassment and other forms of improper behaviour in the workplace. All staff must be made fully aware of this policy, along with the relevant reporting and investigation processes. Proper enforcement of such measures can help prevent inappropriate behaviour, minimising the need for NDAs and settlement agreements. If allegations of improper behaviour are made, they must always be fully and properly investigated to uphold fairness and trust within the workplace.

 

Need assistance?

 

While non disclosure agreements within the workplace remain subject to wider public interest and scrutiny, employers should proceed with caution now more than ever when considering using an NDA.

DavidsonMorris are experienced employment law specialists, with expertise in employment contract terms, including non disclosure agreements. We can advise on initial drafting of the contract terms or on a specific matter and interpretation of existing employment contract terms. If you have a question or need advice on any aspect of a non disclosure agreement, contact us.

 

Employee non disclosure agreement FAQs

 

What is an NDA?

An NDA (Non-Disclosure Agreement) is a legal contract that protects confidential or sensitive information from being shared or used inappropriately.

 

When are NDAs used?

NDAs are commonly used during employment, business negotiations, collaborations, mergers, or when sharing trade secrets with external parties like contractors or consultants.

 

Are NDAs legally enforceable in the UK?

NDAs are enforceable if they are properly drafted, reasonable, and do not attempt to restrict lawful rights, such as whistleblowing or reporting harassment.

 

Can an NDA prevent an employee from whistleblowing?

An NDA cannot override an employee’s legal right to report wrongdoing under the Public Interest Disclosure Act 1998 or issues such as harassment and discrimination under the Equality Act 2010.

 

What happens if someone breaches an NDA?

If someone breaches an NDA, the injured party can take legal action, which may result in compensation, injunctions, or other remedies.

 

How long does an NDA last?

The duration of an NDA depends on what is agreed between the parties. Some NDAs are time-limited, while others last indefinitely for trade secrets.

 

Are NDAs suitable for all situations?

Employers should only use NDAs for legitimate purposes, such as protecting sensitive business data or intellectual property, not to silence employees or conceal wrongdoing.