Severance negotiations are commonplace when an employee is let go from their employment. When a deal is struck, the signing of a non-disclosure agreement (“NDA”) is typical. NDAs can be a standalone agreement but it is not unusual to find them built into general releases in favour of the employer. Releases and NDAs can and often do include clauses that prohibit an employee from discussing the terms and conditions of the settlement and from speaking negatively about their employer. However, for years these clauses have been hotly debated.  Recently, the National Labour Relations Board in the US officially imposed strict limitations on their use.

Why NDAs?

When an employer is being sued or facing the prospect of liability, whether it is in the context of severance negotiations or another issue, the organisation is not only concerned with the legal consequences. Employers do not want other employees to catch wind of settlements in fear that it may spark a series of claims or expensive negotiations on exit packages. 

If the reason for the departure or lawsuit is publicly embarrassing for the company, for instance sexual harassment, there will be a strong desire to keep it under wraps. 

The Debate

The legal community, among other public organizations and stakeholders, have advocated to do away with overly restrictive NDAs for years. The concern is that employees are stopped from helping co-workers assert their rights.  

It is now the case in the US that, at least for severance negotiations, employers cannot implement overly broad and heavily restrictive confidentiality and non-disparagement conditions.  In Canada the topic has arisen in the context of the MeToo movement (see here for our article on these developments), out of concern that victims were unduly silence from sharing their stories.  Recently, the Canadian Bar Association voted overwhelmingly in favour of abolishing NDAs in cases of discrimination and harassment.  Although there are no legal changes that restrict their use in Canada, there is an increasing call to amend the law.  

Takeaway

If Canada follows suit with the US on the use of NDAs it would be a significant shift away from traditional settlements between employers and employees. There may also be unintended consequences as employers are motivated to settle legal disputes in exchange for the very promises that would no longer be enforceable.  This could lead to more claims being litigated which may heighten costs to claimants and increase the timelines in which matters are resolved. 

Conversely, the upside could be well worth it as employers will feel greater pressure to ensure that employees are treated well and to offer packages that more accurately reflect an employee’s entitlements. In cases of harassment and discrimination, complacent employers will have to address complaints seriously and take steps to create safer and inclusive work environments.