Blog: A balanced approach to the legalities surrounding ‘gag’ clauses is needed

Stephen Holst
Stephen Holst

Stephen Holst, partner at McCann FitzGerald, writes on the complex issue of “gag” clauses.

The use of confidentiality and non-disparagement clauses, sometimes called ‘gag’ clauses, in employment settlement agreements has been the source of criticism in light of recent revelations regarding the covering up of alleged wrongdoings by public figures.

There is unquestionably an important public interest in preventing employers from intimidating employees into unwillingly signing gag clauses that hide matters from the public interest or silence those who may have been subject to, or are aware of, serious wrongdoing, for example, abuse. Even if not legally effective, the inclusion of such provisions can be enough to stop an employee raising a matter any further.

The Comptroller and Auditor General has commented that, in the public sector, such provisions “should acknowledge statutory override of confidentiality terms and should not interfere with employees’ rights or prevent the employer from fulfilling its accountability obligations”.

However, the use of such clauses in appropriate circumstances does serve a valid purpose in ensuring that both employee and employer can agree to a clean break where relations have broken down between the parties.

In many employment settlements, there is no wider public interest or serious wrongdoing involved. The parties merely want to reach a private settlement and get on with their lives.

Employees can move forward with their careers knowing that the former employer cannot lawfully damage their reputation. Employers are not, however, likely to make payments under a settlement agreement if they cannot protect against an employee subsequently damaging the employer’s reputation or divulging the contents of a settlement agreement.

Irish law has attempted to strike a balance. Firstly, the High Court has ruled that for an employment settlement agreement (including confidentiality provisions) to be valid it must be entered into without undue influence or intimidation and the opportunity to obtain legal advice must be provided.

In addition, the Protected Disclosures Act 2014 prevents an employer from restraining a current or former employee from making a protected disclosure because the employee has signed a settlement agreement.

Employers have tried to deal with the second limitation by requiring an employee to confirm in writing that they are not aware of circumstances which would give rise to a protected disclosure at the time of signing, effectively trying to bind the employee to their own words.

However, in the financial services sector, the Central Bank of Ireland has commented that it is inappropriate for regulated institutions to use such a model.

Placing employee settlement agreements and the requirement to obtain independent legal advice on a statutory footing is certainly a sensible starting point. This is already the case in the UK.

There may also be merit in extending the role of the independent legal adviser, particularly in circumstances of vulnerability such as alleged harassment, so that an agreement in those circumstances is only binding if the legal adviser certifies in writing that they enquired to ensure an employee was not acting under duress and that the employee had been appropriately legally advised.

It has been suggested that employers should publish the number (but not the content) of employee settlements in which confidentiality clauses are included.

However, in doing so, an employer may be perceived to have breached employment law in each settlement, when the reality may have been that both parties were happy to enter into a mutually beneficial agreement.

In a small organisation, the publishing of a settlement at all could identify that a particular individual in that organisation had negotiated a settlement, when both parties had in fact agreed to present a departure as a resignation for the benefit of the employee. Requiring publication would likely require employers to take a firmer line with these matters.

In light of recent events, it is important to consider the appropriateness of confidentiality obligations in settlement agreements and whether the limitations of existing Irish law are appropriate, clear and serve to benefit all parties involved.

A statutory codification of the existing legal position, as is already the case in the UK, is a very sensible starting point.

However, a balanced approach is necessary to ensure that the settlement of appropriate workplace issues is not inhibited, there is recognition that not all employment law issues are the same and also that there are appropriate protections in place for vulnerable employees.

  • Stephen Holst is a recently-appointed employment partner at McCann FitzGerald. You can view his profile here.
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