Settlement Agreements & the British #MeToo scandal

Sir Philip Green has been named in Parliament as a businessman who has used Non-Disclosure Agreements to silence employees who have allegedly been subjected to harassment and abuse. Once again, this has thrust the notion of paying to silence victims into the mainstream media. In this case, because it relates to employment, when the media refer to NDAs what they are actually referring to are settlement agreements.

What is a settlement agreement?
A settlement agreement is made between an employer and an employee to settle any potential disputes between them. They are most often used to end an individual’s employment. Under a settlement agreement, an employee will typically receive compensation for their employment being terminated, in return for them signing away any rights to bring a claim against the employer.

Under a settlement agreement an employee and employer may agree not to disclose a number of matters, such as:
– The terms of the agreement
– The actual existence of the agreement
– The events that led to termination or entering into the agreement
– Any events during employment

Settlement agreements have previously been criticised for the use of such “gagging clauses” where employees were prevented from raising serious wrongdoing of their employers due to having signed a settlement agreement. Following public pressure, since 2015 it has not been possible to prevent someone from making what’s known as a “whistleblowing disclosure” through a confidentiality clause in a settlement agreement, the purpose being to ensure that matters of public interest are not kept covered up through settlements with employees.
The current controversy goes further than this and shines a light on all kinds of confidentiality clauses in settlement agreements, not just those about matters of public interest.

Some argue that employees should not be prevented from discussing matters such as sexual harassment or racial abuse (the alleged examples from the Philip Green matters) because this means the culture of the organisation can continue without there being any onus on the people at the top to improve things. The argument is that the employer can use their power and money over the employee to effectively push them into silence.

However, the counter view is that employees and employers should be free to agree between them how to bring about the end of employment on terms that are beneficial to both parties. One thing which balances the power issue is the fact that a settlement agreement cannot be binding on the employee unless they have taken independent legal advice on it. This should mean that the employee is in a good position to understand exactly what they are entering into and weigh up whether they accept it.

In many situations, the use of settlement agreements is a valid way for both parties to have a clean break and benefit from clauses which help them move forward – for the employees this may be a sum of money enabling them to leave work and take time to find new employment, whereas for the employer this may be the fact they can avoid lengthy litigation with an ex-employee.

Debate around settlement agreements, particularly in the face of concern of abuse of power, may result in confidentiality clauses being banned altogether but it’s arguable that all that will do is push both parties into having to litigate to end employment relationships because there will no longer be enough incentive for an employer to enter into an agreement.

For more information about settlement agreements or ending employment, our employment team would be happy to discuss with you further. Please contact us on 0161 926 9969 or by email