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Discrimination claims and Settlement Agreements

11 June 2019

Parliament’s Women and Equalities Commission has just published an important report relating to tribunal claims for discrimination, and the use by employers of “non disclosure agreements” – NDAs, or confidentiality clauses – to “gag” victims of discrimination and harassment from speaking about their treatment. The report contains many recommendations for the government to consider, and while we do not know whether any of these will be implemented, the report gives a useful insight into the potential direction of travel on these issues.

Douglas Strang
Douglas Strang
Senior Associate

The report comments that “it is completely unacceptable that allegations of unlawful discrimination and harassment in the workplace are routinely covered up by employers with legally drafted non-disclosure  agreements” and describes the situation as “shocking” and “deeply troubling”. 

The Commission concludes that it must be in the public interest that employers properly tackle instances of discrimination and harassment, fully investigate allegations, and do not “cover up” wrongdoing by using NDAs.  The Commission is not against the settlement of claims, but considers that it is preferable for claims to be settled on a basis that does not include any NDA or “gagging clause”.  This, inevitably, would make settlement less attractive for employers, and raises the prospects that both parties would be forced to go through a protracted, expensive, and sometimes traumatic, employment tribunal litigation.  That would not necessarily be in anyone’s interests

While concentrating on NDAs the Commission also makes wider recommendations in relation to discrimination claims which, if implemented, would have a significant impact in this area.  The intention appears to be to address some of the other perceived problems with the ET system which make the pursuit of claims deeply unattractive, and therefore encourage employees to sign up to NDAs in order to settle and resolve matters

The Commission’s recommendations include the following:

  • The government should legislate to require employers to fully investigate all allegations of discrimination/harassment, even where a settlement has been agreed
  • Employers should be required to provide all employees with a basic factual reference, to prevent the provision of a reference being a bargaining tool in any negotiation
  • The time limit for raising a claim of sexual harassment, or sex/pregnancy discrimination should be increased to 6 months, and time limits in other cases reviewed
  • There should be a review of how the tribunal system operates and whether some aspects, such as the online reporting of ET decisions, may be of particular disadvantage to certain protected groups
  • Employees should be signposted to availability of free advice, and legal aid eligibility should be reviewed
  • Claimants in an ET claim should be protected from unreasonable threats of the employer seeking an award of costs if an employee does not accept a settlement offer.  It should be made clear that it will never be unreasonable (and therefore never attract an award of costs) to refuse to agree to a NDA
  • The government should legislate to ensure that the compensation/costs regime does not discourage claims, and provides proper disincentive for discriminatory behaviour.  Punitive damages should be available.  Compensation for non-financial losses should be “significantly” increased. There should be a presumption that if the employer loses a harassment claim, it must pay the employee’s legal costs (but the reverse would not apply if the employee lost). 
  • Steps to limit the negative impact of NDAs
    • Including a NDA in a Settlement Agreement which seeks to prevent protected disclosures should be a disciplinary offence for the professional adviser, and potentially a criminal offence
    • NDAs should have standard, plain English wording, and should be limited in scope; employers would have to justify departing from the standard permitted wording
    • Carry out a wider review of how to prevent NDAs covering up discrimination
  • Employers should pay the employee’s legal fees in connection with legal advice about a Settlement Agreement at a level sufficient to “cover” their costs, and this should be paid whether or not the employee does agree to sign the Agreement
  • Employers should be required to appoint a senior manager at board level (not HR) to oversee anti-discrimination policies, oversee the use of NDAs, and review the level of settlement sums paid and whether that is an appropriate use of the company’s funds. 
  • Employers should be under a mandatory duty to protect employees from harassment and victimisation, with “substantial financial penalties” for any breach of the duty, and the possibility of extending that duty to all types of discrimination

It will be seen that these are substantial and far-reaching proposals, which would require all employers to focus, as a priority, on addressing discrimination and harassment issues, and also to think very carefully about the use of Settlement Agreements and NDAs to resolve disputes. 

Clearly the Commission has considerable concern that valid concerns about discrimination are being “swept under the carpet” – employees are not getting a proper remedy, perpetrators are not being held to account, companies are not learning from their mistakes, and the public is prevented from knowing about unacceptable employer behaviour.

On the other hand, many employers will be aware that not all discrimination/harassment complaints are meritorious, and employers may reasonably consider that if they are going to make a payment to settle the matter, then that must include protecting the company’s reputation against unfounded criticism and allegations.  Limiting the employer’s ability to do so will certainly make settlement less attractive, and is likely to mean even more claims being raised, and more of those claims proceeding to a hearing, with all the disruption, distress and cost that this involves. 

There is a balance to be struck between preventing employers using NDAs to “gag” employees / cover up wrongdoing, and on the other hand preventing employers being subjected to unreasonable harm due to malicious or simply ill-founded allegations.  Whether these proposals would, if implemented by the government, strike a good balance, or go too far, will be a matter for discussion over the coming months.  It may be that the government has other priorities at present….

Contact the BTO employment team if you would like to discuss any aspect of this blog.

 Contact: Douglas Strang, Senior Associate T. 0141 221 8012

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