Non-Disclosure Agreements in Employment Law

Written on behalf of Peter McSherry

Much attention has been given to the words “non-disclosure agreement” recently, given rather stormy issues which have arisen south of our border, but few people know how non-disclosure agreements work in an employment context and how it may impact them if they are subject to one.

What is a Non-Disclosure Agreement

A non-disclosure covenant is often a term of a settlement agreement which has been reached in many forms of lawsuits, not just those with scandalous or headline making overtones.

In employment cases, usually both parties agree in the minutes of settlement (the agreement reached at the end of a mediation or other dispute resolution process) to keep the terms of the settlement confidential.

Often the parties will also agree to whether or not a positive reference will be given by an employer, or whether the employer will just confirm dates of employment. Employees will frequently also  agree to make no offensive or negative comments about the employer.

Such minutes of settlement are similar to a non-disclosure agreement.

What Happens When A Non-Disclosure  Agreement is Broken?

The means of enforcing the terms of a minutes of settlement or a non-disclosure agreement can be deceptively simple.

If, for example, the minutes state that such a confidentiality clause is a fundamental term of the agreement, the party who breaches that clause will risk the entire settlement being null and void (i.e. being unenforceable). For the employee, this would mean returning all money they received as a result of the settlement. For the employer, it would mean a e risk of being sued again for the original action. Alternatively, it could also expose the breaching party (whether employer or employee) to a claim for damages.

Occasionally, the parties may state a sum that must be paid in the event of a breach. This is acceptable and enforceable as long as the sum is a “genuine pre-estimate” of the damages to be incurred. Essentially this means that the damage sum must be realistic and not a penalty.

Public Policy

In the case of alleged improper conduct such as that which may be alleged in a sexual harassment case, there is no public policy prohibiting the parties from agreeing to keep the allegations secret.

This is true whether the case is a civil action being heard in court or a human rights case being heard at a tribunal. The settlement may well be considered “hush” money but that is not improper, as long as the parties have voluntarily agreed to the terms of settlement in the normal course.

Importantly, there is nothing stopping the alleged victim from pursuing his or her case in court or in the human rights process, which will result in a public hearing. Testimony in court cannot be used to support a defamation claim nor can the words in a statement of claim or any other legal process. Legal proceedings are public documents. They can be reviewed by any member of the public and quoted in the media.

The courts will allow the parties to set out the terms of their agreement as they may wish. Should this involve a non-disclosure agreement, then so be it. This being said, such an agreement may be reviewed by a court which may allow an exception to it. Should, for example, a second or later victim of the same pattern of abuse seek to establish such a repeated practice, a court may overrule, likely on confidentiality terms, the non-disclosure and allow the evidence to be introduced in court.

This form of confidentiality term is different from the usual employment contract which sets out limits of disclosure of company secrets. Such agreements are considered void from the start and the employer must then justify the need for the term. This has been reviewed previously.

Keeping the Dispute Out of Court

Just as in the case in the American media, the parties could also agree to an arbitration process to resolve any disputes which may arise from the interpretation of the non-disclosure agreement. Again, presuming a fairly negotiated agreement, there is nothing improper about this practice. Arbitrations are private hearings, which is the normal motivator for the use of this process.

Let Legal Advice be Your Guide

If you are facing the possibility of a non-disclosure term in a settlement agreement, you must understand your rights and obligations. Often the wrongdoer wants the allegations to be outside public scrutiny. You as the employee may feel the same way. Public attention to sexual abusive conduct in particular is often not wanted by either party. Get advice and understand your rights.

Contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues and assert your position. Contact us online or by phone at 519-821-5465 to schedule a consultation