Non - disclosure agreements or “NDA’s” get a bad rap. 

They have been criticised, particularly over the past 5 years in the wake of the #MeToo movement, for silencing victims and allowing perpetrators of serious sexual assaults to move on with impunity. There have been calls for New Zealand to follow other countries in legislating to declare them unenforceable. 

Given the context within which these issues are typically reported, there is a high degree of emotion attached to this topic.  Who would not agree that protecting someone who has sexually harassed a vulnerable, often young, person, whilst preventing the victim from sharing their story and exposing this behaviour, is unconscionable.  It is also true that there is often a significant power imbalance between the employer and employee when these agreements are entered into.

But stepping back from this particular scenario, removing the ability of parties to enter into confidential settlement agreements would have a number of adverse impacts.  Most obviously, it is unlikely that employers would agree to settle grievances if the employee party was able to talk freely about the terms of the agreement and the pay-out they had received. This, in turn, would force employees into a situation where they had to go to Court to hold their employer to account. 

Aligned with this, the threshold for seeking name suppression in the Employment Relations Authority and Court is high, and generally once proceedings are filed, the case becomes a matter of public record.  The unfortunate reality is that, regardless of whether an employee is proved right or wrong by the Authority, the fact of bringing a case against their employer can mean they are viewed as difficult or a trouble maker.

Further, NDA’s are often accompanied by mutual “non-disparagement” clauses, which effectively means that the parties agree not to speak ill of each other.  These clauses can be very valuable to departing employees, who are reliant on their previous employer for references or at least, not to disparage them.

In a recent case involving Presbyterian Support Central Charitable Trust, a former employee sued the Trust after entering into a record of settlement which included a non-disparagement clause.  Another provision in the agreement said that if contacted by a third party, the employer would restrict its comments to those which are consistent with the text of the reference.  When the former employee applied for a new role, the prospective employer asked whether the Trust would hire them again, to which the Trust responded no.  When asked why not, the Trust said that the former employee did not align with the company values.

The Authority found that the Trust had breached both the non-disparagement and reference clauses in the settlement agreement and ordered the Trust to pay a penalty of $10 800.

In another case involving Auckland City Couriers, it was the employee party who was found to have breached the confidentiality of the terms of settlement, and was ordered to pay the company $1000.  In enforcing these provisions, the Authority said that confidentiality was not an “arid or vacant construct”.

The challenge is how to ensure that bad employers are outted, whilst not creating a situation where employers become unwilling to enter into settlement agreements to resolve grievances.  Whilst such agreements may be criticised as paying an employee off or buying their silence, the reality is that they are a necessary part of resolving employment disputes.  Put bluntly, in most cases grievances would not be settled without them.

The solution may not be to outlaw confidentiality agreements, or NDA’s, but to make it far easier for employees to get name suppression in Authority and Court cases.  This would put employees in a position where they are not forced to enter into settlement agreements through fear of being seen as trouble - makers if they take a personal grievance.  Many will still choose to settle, including to avoid the stress and cost of a Court case.  

But the decision should not come down to fear about damage to their own reputation and future employability.  This is where the imbalance in power is most pronounced, and there are compelling reasons for the Government to now look at this issue seriously.