International developments on the use of NDAs in settlements

​Part of embracing equity on International Women’s Day includes ongoing work to effectively address discrimination and harassment at the workplace.

Over the past 5 years, there has been increasing advocacy in Canada, the US and abroad, for laws that protect survivors of discrimination and harassment – particularly with respect to placing limitations on the use of non-disclosure agreements (“NDAs”). Recently, on February 9, 2023, the Canadian Bar Association passed a resolution discouraging the use of NDAs to silence whistleblowers and victims of abuse, discrimination and harassment.

This article describes the use of NDAs in settlement agreements in Canada, recent legislation in Canada and abroad that limits the use of NDAs in cases involving discrimination and harassment, and the potential impact of these changes on the Canadian legal system.

Laws that enable parties to arrive at private settlement agreements promote the resolution of workplace misconduct claims without the significant cost, resources and emotional energy of an adversarial legal process of a trial, hearing or arbitration.

It is a very common practice for Canadian lawyers to include some form of an NDA in the terms of a settlement agreement, whether or not such an agreement is specifically requested. Given how common the practice has become, lawyers do not always stop to consider the purpose of including NDAs as a standard term in settlement agreements, what they are intended to address, and their impact on survivors and the general public.

Even without an NDA, Canadian laws limit the permissible disclosure of certain facts relating to a discrimination and harassment complaint:

• Without prejudice privilege applies to all settlement discussions, to protect the confidentiality of the communications and information exchanged for the purpose of settling a dispute. This includes information exchanged in mediation, in negotiations between counsel, or negotiations between the parties directly. The privilege is automatic – no express agreement is required. Privilege may be lifted if necessary for one of the parties to prove the existence or scope of the settlement, and may also be waived in certain circumstances, where both parties agree.
• Privacy laws prevent organizations from disclosing personal information about an individual, including a survivor, witnesses or the harasser. There are exceptions, including for complying with applicable laws, disclosure in legal proceedings, or the use of information for journalistic purposes.
• Under the common law, employees owe a duty of good faith, loyalty and fidelity to their employers, which means that employees must maintain confidentiality of trade secrets or other confidential information. Whistleblowers are expected to take an “up the ladder” approach within the organization, by exhausting available internal disclosure protections before going public.¹ This common law obligation is often included in employment contracts or policies.

NDAs may serve to close gaps in existing laws by, for example, placing restrictions on an individual, as a term of settlement, thus restricting them from disclosing their own experiences or other information gathered outside of settlement discussions, once they are no longer employed by the organization.

The primary purpose of an NDA is often to protect the parties’ reputations. Both the employer and employees involved in allegations of harassment and discrimination have a legitimate interest in limiting public disclosure and debate that could damage their ability to work and operate their business. By settling, the parties agree to forego the extensive factual and legal analysis that is imposed by the rule of law. The NDA prevents a “trial by media”, where the general public decides credibility, guilt or innocence without legal protections relating to relevance, credibility, privilege and other evidentiary rules.

In Canada, NDAs normally appear in two types of settlement agreements. The first is in an agreement with the survivor, to settle a constructive dismissal action or complaints under human rights or health and safety legislation. The NDA prevents the survivor from speaking to third parties – including the media, other organizations, or other third parties – about the underlying circumstances of the complaint. There are carveouts for disclosure that is required by law, and often, for disclosure to the individual’s immediate family members, financial and health advisors, provided that they also agree to maintain confidentiality over the information.

The second is when the employer reaches a settlement with an alleged harasser, when that respondent denies the wrongdoing and demands reinstatement or damages for wrongful dismissal. The survivor is not a party to this agreement – but it is common for counsel for the alleged harasser to require the employer to ensure that the survivor does not disclose information about the complaint, particularly if the survivor continues to work for the employer. The NDA applies to the employer and its representatives. Again, disclosure that is required by law is exempt from the NDA.

The NDA precludes individual employees from discussing the facts relating to discrimination and harassment, including to others who have experienced abuse, to the media, and to prospective employers of the harasser.

The potential harm of NDAs relates both to the individual impact on the survivor, and the public interest in being aware of discrimination, harassment, and abuse. As examples:

• The survivor is unaware of others who have experienced the same or similar conduct, who could support healing and connecting.
• The general public is unaware of the extent of the harm and therefore unable to consider whether there are broader, more systemic, issues that could be taken to prevent abuse, harassment and discrimination.
• It is possible for the harasser to secure new employment, without information of an assault or other serious misconduct being disclosed to the new employer. This is particularly concerning where the work involves vulnerable individuals who may be at greater risk of abuse, such as in health care or education.

In response to these potential harms, there have been recent calls for measures to restrict the use of NDAs. We first address the legislative reforms in Canada, then internationally.

In May 2022, Prince Edward Island became the first Canadian province to regulate the use of NDAs when its Non-Disclosure Agreements Act came into force.

The Act prevents the use of NDAs where a person has experienced or alleged harassment or discrimination and where the NDA effectively conceals details of the allegation. The legislation provides that:

4 (1) Other than in accordance with subsection (2), no party responsible or person who committed or who is alleged to have committed harassment or discrimination shall enter into a nondisclosure agreement with a relevant person where
(a) The relevant person has experienced or made allegations of harassment or discrimination
(b) The non-disclosure agreement has the purpose or effect of concealing the details relating to a complaint of harassment or discrimination.²

This legislation focuses on the rights and consent of the survivor of discrimination and harassment. It is not intended to preclude the parties from using an NDA to protect the privacy of the complainant, and an NDA is permitted if it is the expressed wish and preference of the person who experienced or alleged the harassment or discrimination.

Similar legislation was enacted in Ontario in December 2022 with respect to the use of NDAs by that province’s post-secondary institutions when addressing incidents of sexual misconduct involving staff and students. The Strengthening Post-Secondary Institutions and Students Act, 2022 amends the Ministry of Training, Colleges and Universities Act, and the Private Career Colleges Act, 2005.

The Ontario Act focuses on protecting students and employees of post-secondary institutions. Similar to the PEI legislation, the Ontario Act provides that an NDA that provides for a blanket prohibition on the disclosure of an allegation or complaint of sexual misconduct against an employee is unenforceable, with an exception to NDAs that are requested by the student (in specific circumstances).

The Ontario legislation also addresses the harm caused when an abuser leaves one educational institution for another, and their misconduct remains a secret due to an NDA. The legislation prohibits an institution from re-hiring an employee who has committed sexual misconduct and is discharged or resigns as a result. Institutions governed by this legislation are also required to implement a sexual misconduct policy that outlines rules on sexual behaviour involving employees and students, and examples of disciplinary measures for contravention. This policy must be in place by July 1, 2023.

These provinces are the first to implement this legislation, but a number of other Canadian provinces are undertaking a similar review. In November 2022, the Manitoba Liberal Party introduced a private members’ bill to limit the use of NDAs to prevent situations in which survivors of harassment and discrimination would be stopped for speaking out about their experiences.³ Along with Manitoba, the Premier of Nova Scotia stated that it felt “the urgency to do a jurisdictional scan” to determine what position the province would take towards NDAs and their governance.⁴

The United States Congress passed the Speak Out Act (“SOA”) which came into force in December 2022. The SOA prohibits pre-dispute NDAs and non-disparagement clauses relating to sexual harassment or assault allegations. This legislation is intended to prevent employers from having employees enter into NDAs or non-disparagement clauses before a dispute arises. This can sometimes be seen during the hiring process, in severance and/or settlement agreements. The SOA will void any such agreements or clauses if entered into prior to a dispute.⁵

Several US states have also imposed restrictions on NDAs covering workplace discrimination and harassment. These states include California, Maine, Washington, Oregon and New York. With the passage of the SOA, it is expected that more individual states will follow suit and pass their own laws with respect to NDAs in the context of discrimination and harassment.

In 2018, the United Kingdom’s Solicitors Regulation Authority (“SRA”) issued a warning notice on the use of NDAs, including any agreement, contract, clause etc. in which confidentiality regarding certain information is agreed to.⁶ Further, this warning notice was issued with respect to NDAs regardless of the context in which they arise in – whether in employment matters, or other circumstances.

While the SRA acknowledged that NDAs can be properly used for the protection of business interests and confidentiality to the mutual benefit of the parties involved, its concern is the use of NDAs to take unfair advantage of the other party. The SRA outlined that its warning notice did not prohibit the use of NDAs but that it wished to ensure that such agreements were not used to prevent reporting or making lawful disclosures.

In 2022, Ireland commissioned a report with respect to the potential unethical uses of NDAs in order to determine what future regulations may be required. The report reviewed circumstances in which NDAs were used, with a primary focus on sexual harassment or discrimination cases. The report identified themes similar to those recognized in other jurisdictions such as the power imbalances between parties, the negative impacts on complainants and the impact on the careers of signatories.⁷ The report found that sexual harassment and discrimination patterns were difficult to detect because of a lack of transparency around settlements and NDAs.⁸

In March 2021, the Victorian government established the Ministerial Taskforce on Workplace Sexual Harassment to research and develop reforms to address and prevent workplace sexual harassment.⁹ The Taskforce made 26 recommendations, of which the Victorian government accepted 21.

The government agreed to consider different options to restrict the use of NDAs in cases of workplace sexual harassment. The Government of Victoria recognized that NDAs were “misused to silence victim-survivors, protect employer reputations, avoid full liability and hide serial offending”.¹⁰ Acknowledging this, the government will review and consult on measures taken in other jurisdictions such as Ireland, the United States and the United Kingdom.¹¹

Though the Victorian Government has not committed to legislative changes, its commitment to further work in this area and its acknowledgement of NDA misuse suggests legislative changes could be made in the near future.¹²

As indicated by the above examples, policymakers recognize the potential harm that results when NDAs prevent the disclosure of workplace harassment and discrimination. The policy trend favours transparency in allegations involving discrimination and harassment, over the reputational protection of the employer or accused harasser.

Legislative reform and judicial decisions are likely to continuously evolve this area of employment law over the coming years. The impact on the parties and legal system is still unknown. It is possible that fewer claims will be resolved outside of legal proceedings – because, for example, concerns for “trial by media” are enough to refuse to settle – but that remains to be seen.

An ongoing review will likely be necessary to determine whether these laws, in fact, reduce harm to survivors and increase transparency to the general public. As an example: the laws allow the survivor to consent to an NDA. The law could be rendered practically ineffective in a case where the harasser insists on the NDA to settle litigation, and the survivor agrees to the NDA in order to avoid having to participate in further legal proceedings. It is yet to be seen whether an alleged harasser’s insistence on pursuing litigation could be considered undue influence under the legislation.¹³

However, one thing is now quite clear: these legislative changes have a significant impact on the role of legal counsel in harassment and discrimination claims. The practice of automatically including NDAs in all settlement agreements is no longer consistent with lawyers’ obligations to properly advise their clients. When drafting settlement agreements, legal counsel is responsible for considering the enforceability of an NDA in light of recent legislative changes, weighing the legitimate interest of including an NDA against the potential harm to the survivor and the general public, and advising their clients accordingly.