Non-disclosure agreements in employment contracts – do employers really need them? (Part 1)

Recent high profile scandals reported in the media from Harvey Weinstein and the #MeToo movement to disclosures made under UK Parliamentary privilege about the British retailer Sir Philip Green have brought into focus the appropriateness of using such agreements, and whether the party seeking to rely upon them really need them. In this climate the mere use of non-disclosure agreements (NDAs) can sometimes carry reputational damage.

The use in a workplace context of NDAs used to be relatively unusual. In Bermuda, as in the rest of the common law world, even if there is not an express contractual clause of confidentiality in an employee’s contract of employment, this term will be implied.  However, it has now become standard practice for many employees to include wide-ranging NDAs in employment contracts and settlement agreements.

Typically, confidentiality clauses in employment contracts cover technical and client information acquired during employment, although some go much further. Similar provisions in settlement agreements often cover the existence and terms of the agreement as well as the circumstances surrounding the termination of employment, including any allegations made during employment, including in relation to sexual harassment or other alleged wrongdoing.

It is important to note that an NDA cannot be used to prevent an employee from making a disclosure for the purposes of Bermuda’s whistleblowing legislation or to report criminal conduct, and any agreement that purports to do so will be void. Further, where an individual is obliged by law to disclose information, i.e. where they are required to give evidence in a court case or to a tax inspector, that disclosure will not breach the terms of the NDA. For this reason, it is vital to ensure that there are appropriately worded ‘carve-outs’ for lawful disclosures within the NDA.

This is not to say that an NDA should never be used; sometimes their use will be vitally important to protect the reputation, confidentiality and sensitive information of the business. Before asking an employee to sign an NDA, employers should carefully consider whether this type of agreement is actually required, and if so, including whether the agreement goes no further than reasonably necessary to protect the employer’s interests.

The alternative for the prudent employer is to consider improving the general confidentiality clause in an employment contract or settlement, which can be made more or less demanding depending on the seniority of the employee, and without the draconian total ‘gagging’ effect of some NDAs. It can also be crafted to ensure that the maintenance of confidentiality and the return of confidential information post termination.  The issues to be considered when drafting the right confidentiality clause for a particular business and seniority of employee will be considered in part 2.

This note is intended as a high level overview of this topic. Legal advice should always be sought on a case by case basis.