The UK Government has responded to the recent ‘Sexism in the City’ report by the House of Commons Treasury Select Committee (the “Report”).  Among various recommendations in the Report was an outright ban on the use of non-disclosure agreements (“NDAs“) in sexual harassment cases, but the Government has decided it will not go that far.

The Government’s response

Published in March 2024, the Report looked at a wide range of issues facing women who work in UK financial services, including the use of NDAs in sexual harassment cases. It concluded that the misuse of NDAs was “widespread” and “shocking” and recommended an outright ban be introduced preventing the use of NDAs in such cases.

In its response, the Government says that, while it “shares concerns that NDAs are being used to intimidate victims of discrimination and harassment into silence”, it will not bring in a ban and instead points to the steps already being taken to combat NDA misuse:

  • a ban on NDAs in the higher education sector (in cases of sexual abuse, harassment or misconduct, and other forms of bullying or harassment) through the Higher Education (Freedom of Speech) Act 2023, which is expected to take effect in August 2024; and
  • a proposed ban on the use of NDAs that prevent disclosure of information relating to criminal conduct (discussed further below).

The Government also points to existing employment legislation which would invalidate NDAs in relation to whistleblowing but concludes that individual circumstances vary in relation to cases of sexual harassment and discrimination.  Referring back to a consultation carried out in 2019 into the use of NDAs, it says that the responses indicated that “many employees who sign a settlement agreement at the end of their employment with an organisation value the inclusion of confidentiality clauses, as they allow them to move on and make a clear break“.

The regulatory response

Another of the Report’s recommendations was that the Financial Conduct Authority (“FCA”) should collect data on the use of NDAs by regulated firms in cases of non-financial misconduct (i.e. bullying and harassment).

In its response to the Report, the FCA referred to the survey it issued to insurance and banking firms in February, requiring them to disclose how many incidents of non-financial misconduct they had encountered in the past three years, and how often they ended with an NDA being entered into.

What the FCA will do with the survey results remains to be seen but it seems possible that they may introduce a requirement on firms to report on their NDA usage going forward on a more regular basis. 

The new legislation

Despite its decision not to introduce an outright NDA ban in sexual harassment cases, the Government recently announced (on 28 March 2024) that it will legislate to ban the use of NDAs that prevent the disclosure of ‘information relating to criminal conduct’.  Although described as “an end to the murky world of non-disclosure agreements“, the scope of the new law is, in fact, fairly narrow. 

First, it will only prevent NDAs that apply to reports of a crime or ‘information relating to criminal conduct’.  We will have to see how that is framed in the legislation but, while it seems wide enough to catch sexual and other harassment in circumstances involving assault, ‘lesser’ forms of harassment and non-discriminatory bullying are likely to be outside of its scope. 

Secondly, the new law will only apply to reports made to:

  • the police or other bodies which investigate or prosecute crime;
  • qualified and regulated lawyers; and
  • others providing support services who operate under confidentiality, such as counsellors, advocacy services or medical professionals. 

So, even in criminal cases, NDAs will be permitted to prevent disclosures to friends, family and prospective employers. 

It is also worth noting that the Solicitors Regulation Authority made clear some years ago that it expects solicitors to ensure that, where they are involved in drafting or reviewing NDAs in settlement agreements, they must not prevent disclosures to the police, regulators, or legal and medical professionals.  The proposed new law does not seem to take things much further, although it will extend to NDAs not prepared or reviewed by solicitors. 

What does this mean for employers?

There has been much negative publicity surrounding the use of NDAs in recent years, with some high-profile cases showing how NDAs can be misused.  It remains recognised, however, that, when used responsibly, NDAs can have a legitimate role to play in the protection of sensitive, confidential information that neither the employer nor the employee wishes to become public. As such, employers will no doubt welcome the Government’s decision not to implement an outright ban, particularly where confidentiality is also valued by the affected employee.   As for the proposed new legislation, when the Government announced it in March, it said it would be introduced ‘as soon as parliamentary time allows’.  Now with a little over a month to the election, it remains to be seen whether it will find its way to the statute books.

If you have any questions on this, or any other topic, please contact your usual Mayer Brown contact or Christopher Fisher or Cheryl Stevart