Legal Services Board Releases Evidence on The Legal But Unethical Use of NDAs and The Imbalance of Power

Non-disclosure agreements (also known as NDAs) are a legal tool that prevents a party from publicly disclosing specific information. This could include sensitive business matters, trade secrets or confidential knowledge.

Although the terms confidentiality and non-disclosure agreement get thrown around interchangeably, there are differences. An NDA is a specific type of confidentiality agreement, with differences arising due to the agreement terms and relationship between the parties that formed it.

In February 2024, the super-regulator, the Legal Services Board (LSB), published a report concerning “The Misuse of Non-Disclosure Agreements”. This included how they were used to cover up misconduct and silence individuals. Below, we examine the report’s findings and explore data submitted by the likes of the Solicitors Regulation Authority (SRA).

If you have any questions or have been offered a non-disclosure agreement, contact Redmans Solicitors today. We are employment law specialists and could answer your questions before advising on your possible next steps.

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The Unlawful Use of NDAs – An LSB Report

The LSB report began by establishing common misuses of an NDA. They explained how, although not illegal, unethical uses of such agreements had been raised, such as to cover up bullying at work. Yet, unlawful uses were also reported, as respondents alleged that harassment, sexual assault, and discrimination had previously been concealed. Education was at the top when analysing their misuse by sector, with illegal conduct and maternity discrimination being the main reasons for their use.

Considering the above, the LSB suggested that an imbalance of power between employer and employee was present. This is because employees relied on financial compensation and references, which employers could exploit in their favour.

Signing a Non-Disclosure Agreement Can Severely Impact Mental Health

The report then highlighted the potentially devastating impacts of NDAs. One of the respondents had previously conducted a survey, discovering that 95% of people who signed one had ongoing mental health problems. This was primarily attributed to individuals being unable to talk to friends and family about their difficult circumstances.

Pregnant Then Screwed (PTS) provided the report with insight into how an NDA could affect an individual’s mental health. Their January 2022 survey found that 71.8% of women who signed one following discrimination felt a mental health decline. Rights of Women (ROW) added that some women they support suffer acute mental illness after signing one.

Yet mental health wasn’t the only negative effect of such agreements raised by respondents. Others reported well-being, financial and career opportunity impacts, with some employees struggling to find new work. A common explanation was that their non-disclosure agreement prevented them from discussing why they left their previous employer.

NDAs are Surrounded with Access to Justice Problems

Next, the LSB’s report addressed alarming NDA access to justice issues. They stated that, according to employment tribunal statistics from 2020, 32% of claimants had no recorded legal representation. One respondent discussed their struggles obtaining legal advice, as firms didn’t want to lose potential work from the individual’s employer.

Additionally, many respondents, like the Employment Lawyers Association (ELA), highlighted a trend that finance was a common barrier to justice. PTS outlined that 52.6% of their survey’s respondents cited costs as the reason they didn’t pursue tribunal proceedings. Moreover, the SRA stated that even when employers fund legal advice, they typically only contribute between £250 and £750. Consequently, the advice an employee gets from their solicitor is limited.

The LSB were also concerned with individuals not understanding fundamental confidentiality agreement rights, like when they would be void. For example, two respondents who’d signed NDAs thought their agreement included clauses that prevented them from whistleblowing, which is unlawful. Someone else explained how they only became aware of the agreement’s legal limitations after signing it.

In part, this could be explained by respondents who felt legal professionals poorly set out the terms of their agreement. In such circumstances, it was claimed the legal professional treated it as a simple NDA and provided little sensitivity. 

For example, one respondent claimed their solicitor said, “The money I was being offered was enough… I should probably just move on with my life”. However, for such people, the agreement wasn’t just a ‘standard NDA’ but a significant moment in their lives.

Can’t Buy My Silence (CBMS) added that some employer-funded legal professionals would offer limited advice to not ‘rock the boat’. This strengthened the argument that firms avoided advising smaller parties properly to ensure work from better-funded ones wasn’t compromised.

Calls for an Independent Public Body to Regulate NDA Misuse

With so many shortfalls concerning the use of NDAs being highlighted, one might wonder why this hasn’t been reported. Well, the LSB analysed how reported misuse had been dealt with, and they found widespread knowledge gaps concerning the application of NDA guidelines. Some of the entities people reported misuse to included:

  • Their local MP
  • HMRC
  • The Charity Commission

PTS stated they’d previously reported misuse to the Charity Commission, who explained they don’t regulate the use of such agreements. Instead, any misuse brought to their attention would be treated similarly to other severe regulatory issues.

This showed significant reporting problems and led The Law Society (TLS) to compare the legal infrastructure concerning NDA regulation with that in personal injury claims. They explained how, whilst individuals could pursue personal injury compensation, the Health and Safety Executive (HSE) would examine workplace safety. As such, TLS felt an independent public body should be set up to regulate the use of NDAs, much like the HSE.

But that’s not all. The likes of Maternity Action (MA) suggested that amendments to legislation should be made. They believe gender pay gap reporting should require the disclosure of maternity retention rates to spotlight women who’ve quit following discrimination. Others felt that bodies like ACAS should receive training to improve their knowledge of non-disclosure agreement guidelines.

The LSB’s Next Steps

After highlighting the apparent misuse of NDAs, the LSB finally discussed how they intend to proceed. Since individuals expressed how they felt pressured to sign such agreements and silenced once they had done so, current legislation is clearly not completely effective. The same can be said about the imbalance of power that leads to individuals experiencing detrimental outcomes.

The LSB believes this exploitation undermines the rule of law and the correct administration of justice. As such, they will continue to examine the full effectiveness of current law and see how this can be improved.

In addition to this, they look to address gaps in their evidence. For example, the LCB believe that individuals satisfied with their non-disclosure agreement wouldn’t come forward to discuss their circumstances. Therefore, they will continue to look for ways to gain a complete picture concerning the use of these agreements.

Get Help With Redmans

If you’re faced with the potential misuse of NDAs, contact Redmans Solicitors today. We have vast experience in the employment law sector and could assess your case before advising on how you could proceed. Get in touch with us now by: