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Not a word: confidentiality provisions in employment contracts, settlement agreements and non-disclosure agreements

Friday, 9 March, 2018


Not a word: confidentiality provisions in employment contracts, settlement agreements and non-disclosure agreements

Therese MacDermott, Consultant

Roseanna Smith, Graduate Associate

Recent publicity around sexual harassment and other forms of misconduct in the workplace has brought into the spotlight the extent to which confidentiality provisions in employment contracts, settlement agreements and standalone non-disclosure agreements are used to keep such conduct out of the public domain. While a litigated dispute will mean the issues are aired in a public forum, few matters are in fact litigated, and settlement on confidential terms is a widespread practice.

Competing factors come into play surrounding the extent to which such matters become public knowledge. On the one hand, parties to a dispute are at liberty to settle a dispute on terms that they can agree on, including a provision that makes the fact that the conduct occurred confidential and not something to be disclosed by any party to the agreement. On the other hand, serious forms of wrongdoing and/or systemic practices at a workplace may be of genuine concern to the broader community, and hence a valid subject of public interest.

This article considers recent developments in this area, including the proceedings seeking to enforce the obligations under a deed of release signed by a former employee of the Seven Network, and the recent campaign that banks should waive their rights to enforce non-disclosure agreements against former employees who may wish to give evidence to the Royal Commission into Misconduct in the Banking, Superannuation and Finance Services Industry (the “Banking Royal Commission”).

How non-disclosure terms operates in an employment context

Confidentiality clauses

Most employment contracts contain confidentiality provisions that limit the extent to which employees can disclose confidential information during, and after the conclusion of, the employment relationship. In addition to contract law principles, equitable obligations of confidentiality are also applicable. The type of information which is generally defined as being “confidential information” in an employment contract includes intellectual property, business plans, trade secrets, client lists, research and commercially sensitive information. These types of clauses, however, are not general regarded as preventing employees from disclosing sexual harassment and misconduct in the workplace given that they are aimed at governing very specific types of information that are confidential to the employer, and not principally directly to the manner in which a workplace may operate.

Settlement Agreements

Settlement agreements commonly make provision for tailored confidentiality clauses, as well as non-disclosure terms. This will often be a standard practice where an end to an employment relationship is negotiated between the parties. This could include circumstances where the relationship comes to an end on the basis of established misconduct or other inappropriate behaviour.

In terms of confidentiality, settlement agreements can impose specific obligations regarding the confidentiality of information, processes or contacts the employee or executive in question had access to during their employment. Such clauses are likely to be more particularised than a standard clause in an employment contract. In addition, the terms of a settlement agreement may protect the confidentiality of:

  1. the negotiations leading up to a settlement,
  2. the terms of the agreement; and
  3. any conduct that led to the entering into of the settlement agreement.

A well-drafted agreement will not only include a non-disclosure clause, but also contain a release which ensures that the parties cannot pursue any further claims arising out of the subject matter of the settlement agreement.

Non-disclosure agreements

It is less common in the Australian employment context to have a standalone non-disclosure agreement (“NDA”). However, such an agreement may be entered into where the parties agree to keep confidential certain matters either of a sensitive commercial nature or where wrongdoing may have occurred, but no other matters requiring settlement terms are involved. Such an agreement might also be used regarding commercially sensitive information where contractors or consultants are engaged.

Obligations to disclose wrongdoing

In the case of sexual harassment that amounts to, for example, sexual assault, an employer may be subject to a positive obligation to report such conduct if the employer has “knowledge or belief” of the commission of a “serious indictable offence”, defined as an offence which is punishable by a sentence of imprisonment of five years or more. Offences of that nature could include sexual assault.

In New South Wales, section 316(1) of the Crimes Act 1900 (“Crimes Act”) provides that it is a criminal offence for an individual or a corporate entity to fail, without reasonable excuse, to report a “serious indictable offence”. Relevant to establishing the requisite state of knowledge or belief, is an awareness that the offence has, or may have, been committed, or the holding or withholding of information which might be of material assistance in securing the apprehension or conviction of the offender. The application of the Crimes Act’s obligation to legal practitioners has always been a contentious area, given client confidentiality.

Whistleblowers

Misconduct in the workplace may also come to light by way of a whistle-blower disclosing events or past misconduct. The Corporations Act 2001 (Cth) (the “Corporations Act”) provides some protection for whistle-blowers, as it makes it a criminal offence to victimise a whistleblower or terminate their employment based on the disclosure of certain information. The Corporations Act provides protection from any civil or criminal liability for making the disclosure and no contractual remedy or other right may be exercised against a person on the basis of the disclosure.

However, the protection offered by the Corporations Act is narrow, as it only protects current officers, employees, contractors and employees of contractors. Its protections do not extend to individuals who may have had their employment recently terminated. Further, the relevant disclosure can only be made to the Australian Securities & Investments Commission or the company’s auditor, director, secretary or senior manager or a person authorised to receive whistleblower disclosures. Finally, the legislative provisions only apply when the whistleblower has reasonable grounds to suspect that the company, or an officer or employee of the company, has or may have contravened the Corporations Act.

Intervention by the courts

The role of the courts in overseeing agreements that have been reached in respect of non-disclosure, was considered in the case of Seven Network (Operations) Ltd v Harrison.1

Ms Harrison was employed by the Seven Network as an executive assistant. During her employment she formed a consensual relationship with the Chief Executive Officer of the Seven Network. The relationship ended in 2014, and around a similar time as an investigation into Ms Harrison’s expenses on the company credit card. On 1 August 2014, Ms Harrison entered into a deed with the Seven Network (the “First Deed”). The First Deed effected a role transfer of Ms Harrison within the company and an undertaking to repay $14,000.00 worth of expenses back to the company. Ms Harrison was ultimately terminated from her employment in late 2014 by way of a deed of release between Ms Harrison and the Seven Network (the “>strong>Second Deed”). The Second Deed imposed strict obligations on Ms Harrison that included, among other things, non-disclosure of information regarding the relationship with the Chief Executive Officer and that Ms Harrison discharge Seven Network from any claims that she could have against them.

In March 2015, the Seven Network suspended payments to Ms Harrison under the Second Deed on the basis that Ms Harrison had refused to comply with her obligation under the deed to return certain company property when requested to do so by the Seven Network.

Ms Harrison alleged that the suspension of payments amounted to a repudiation of the deed. By way of accepting the repudiation, in May 2015 Ms Harrison lodged a complaint with the Australian Human Rights Commission (“AHRC”) alleging sexual harassment, discrimination and victimisation.

Between November and December 2016, Ms Harrison shared information publicly about her relationship with the Chief Executive Officer and aired various grievances she had in relation to her former employer. In December 2016, a media release that detailed confidential information contained in the Second Deed and the facts that led to the creation of the two deeds was released. In response, the Seven Network applied to the Supreme Court for an interlocutory injunction to restrain conduct it alleged was in breach of the deeds.

The Court found that the Seven Network’s suspension of payments was a response to Ms Harrison’s refusal to return company property and as such did not amount to a breach of the Second Deed. Further the Court noted that even if this was a breach, the obligation of non-disclosure was not conditional on the Seven Network’s performance of their obligations.

In response, Ms Harrison argued that her case was a matter of public interest, arguing that the enforcement of the non-disclosure obligation would stifle freedom of speech and the open reporting of matters of public interest. She also claimed that the dispute was in the public interest as it involved the interests of the Seven Network and its shareholders, both in a financial sense and because the dispute could shed light on the way in which the Network conducted its corporate governance.

While it was accepted by the Court that the case involved an element of public notoriety and by virtue of that, was in the public interest, the Supreme Court held that the Seven Network’s legitimate interests under the agreement outweighed any public interest in the matter. The Court made clear that where private parties enter into agreements freely, courts will be reluctant to interfere. Hence the court granted the Seven Network an interlocutory injunction preventing any disclosures that came within the terms of the agreement, stating that “if parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done… the thing shall not be done”2. The Court emphasised that it requires “compelling discretionary reasons” to refuse to grant injunctive relief where a breach of a negative covenant has occurred 3.

Is there too much cover-up?

The recent commencement of the Royal Commission has re-ignited discussion around the use of non- disclosure terms in agreements to prevent parties revealing misconduct or other wrongdoing.

The Royal Commission has been set up to, among other things, inquire into misconduct and questionable behaviour within the finance sector. One difficulty the Royal Commission faces is that many victims or witnesses to misconduct are subject to non-disclosure terms. As a consequence, unless the Royal Commission exercises its power to secure information or the corresponding party to the agreements waive their rights, these individuals face the prospect of proceedings alleging a contractual breach should they choose to disclose information to the Royal Commission.

Prior to the start of the Royal Commission, the Australian Council of Trade Unions (“ACTU”) launched a campaign seeking to secure agreement that banks and other financial institutions would waive their rights with respect to disclosure of information relevant to the Royal Commission. The “Big Four” Australian banks have confirmed that customers and former employees who had signed an agreement as part of a settlement are free to give evidence to the Royal Commission, without the threat of legal action.

Limitations, however, have been placed on the waiver. In particular, the Commonwealth Bank has signaled that the waiver is limited to disclosures to the Royal Commission, and has warned that disclosures outside of this forum may still potentially give rise to a breach.

Outside the Big 4, the position of other financial institutions, including regional banks and life insurance companies, is not as clear. In response to this, the Commissioner, the Honourable Kenneth Madison Hayne AC QC, reminded financial institutions of the Commission’s power to secure information:

“First, the commission would be very likely indeed to exercise its compulsory powers to secure the information in question…. Second, the very fact that an institution sought to inhibit or prevent the disclosure of the information would excite the closest attention, not only to the lawfulness of that conduct but also what were the institution’s motives for seeking to prevent the commission from having that information.”4

Take away

While recent developments show that courts may be reluctant to interfere with private agreements that have been made for consideration, caution needs to be exercised. There is still the risk that the information may eventually come to light at some point in time, and the enforcement of strict non-disclosure obligations where wrongdoing is systemic can have considerable reputational consequences.

Factors to consider in framing non-disclosure terms include:

  1. What are the legitimate interests of the parties that should be protected?;
  2. Would a non-disclosure term simply conceal a culture that will do long term damage to the organisation?; and
  3. Does the agreement contemplate limited circumstances where disclosure may be permissible to further the public interest?

PCS strongly recommends that you seek advice when preparing documents containing confidentiality obligations.


1 [2017] NSWSC 129.
2 Otis Elevator Co Pty Ltd v Nolan [2007] at 30 referencing Doherty v Allman (1878) 3 App Cas 709, 720.
3 Otis Elevator Co Pty Ltd v Nolan [2007] at 17.
4 Sue Lannin, ‘What we did (or didn’t) find out about the banking royal commission’, ABC News (online), 12 January 2018

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