Settlement or Gagging Agreements; are they legal and ethical?

The recent flurry of press activity focused on NDA or Non-Disclosure Agreements has brought up the question of legality and whether they are an ethical way to manage the business. If you were listening to the Jeremy Vine show on BBC Radio 2 yesterday you would have heard the debate on this very topic focused on the current legal case whereby a wealthy business owner (who was yesterday named in parliament) allegedly put in place NDA agreements to mask claims of sexual harassment. It is claimed that 5 employees raised concerns over the individual’s behaviour and subsequently signed settlement agreements. A newspaper got wind of the case and started an investigation leading to an injunction against the press being sought and the beginning of a series of legal battles leading to the naming of the individual and detailing the reasons for the agreements. The individual denies the claims and well, we will let the courts work that one out but what is clear is that this case raises questions over the use of settlement agreements in employment matters.

It is worth saying that we believe that these agreements are a tool that is required in business, but they should not replace robust processes and an ethical approach. Settlement agreements are often needed when a situation means that it is untenable for an employment relationship to continue, normally through a breakdown in relationship or trust. Organisations do get it wrong from time to time and need to have a way to amicably move forward and such agreements can be a tool for this.

The most important factor is that they are freely entered into by both parties, in determining this a judge will look at the dynamic of power and whether any coercion has directly or indirectly occurred. To further underpin this it is imperative that employees are given independent legal advice before signing. As the employer, you would pay for this but the choice of a legal advisor is entirely the employees.

It is also important to ask yourself why you are entering into the agreement. If you are ‘covering something up’, you need to consider whether this is the right route and whether this is the ethical approach. As we have seen in this case, although agreements are bound by confidentiality, that did not hold in this case (and let’s be honest those agreements ill have been written by some of the best law firms).

Before you consider an agreement you should follow your normal processes. So, let’s take an example whereby an employee complains about a senior manager on the grounds of sexual harassment. Before any thought of settlement, you need to follow your procedures and conduct a full investigation (and likely suspend the accused individual to allow that to happen fairly). That investigation needs to be thorough and independent. If the investigation demonstrates there is some truth in the allegations then you must consider disciplinary action in the way you would for any employee (a senior manager does not have a separate set of rules when it comes to these matters), it may even lead to dismissal. What may not be ethically acceptable is to offer this manager a settlement agreement to leave to avoid this.

Once concluded you then need to consider how you move forward, if there was no disciplinary action or that action did not lead to dismissal then you need to think about how both parties work in the same organisation and you may be considering things such as mediation to make that possible. If however, the situation is such that it cannot continue then you may need to look at how you support the end of a relationship with either party.

Ultimately in the (unlikely) event the contents of that agreement became public, would you feel confident you had done everything properly or had you ‘paid off’ or ‘covered up’ a problem?

Obviously, there are many variables and cases like this can be very complex but that’s why we are here to support you through it. As the case continues, the use of settlement agreements may change over time and we will keep you informed. We would love you hear your thoughts.



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