Is a Settlement Agreement the Same as an NDA?
When an employee parts ways with their employer, particularly under circumstances in which there is a dispute, the company may be keen to ensure that the former employee doesn’t divulge any sensitive information.
Over the course of employment, a member of staff can learn and be exposed to a fair amount of information that would harm the businesses’ reputation, give competitors the inside scoop, or even bring about legal proceedings.
It is, therefore, in the employer’s interest to officially ensure that the departing employee won’t share anything confidential, which necessitates a legal agreement. Often, a settlement agreement will be used to bring employment to an end in a way that benefits everyone – so is a settlement agreement the same as an NDA?
What are settlement agreements and an NDA?
What is a settlement agreement?
Let’s start by explaining what we mean. A settlement agreement is a legally binding document that can end a dispute between employer and employee in a way that prevents the case being taken to an employment tribunal.
Usually proposed by the employer, a settlement agreement sees the employee leave the company under certain terms with proportionate compensation from the employer. In return, the employee agrees not to pursue the matter further.
These agreements are underpinned by UK employment law, and employers should make sure to carefully follow ACAS guidelines.
What is an NDA (non-disclosure agreement)?
An NDA is an agreement set out between the party that owns the sensitive information, and a person who has access or exposure to it, for example, an employer and an employee. It prevents the latter from sharing the information with others and is enforceable by law.
A non-disclosure agreement is often also referred to as a confidentiality clause, and can be included in other documents, or as a standalone agreement.
Is a settlement agreement the same as an NDA?
No, they are not the same; an NDA can be included as a clause in the terms of a settlement agreement, but they are not interchangeable. You may find the type of disclosure is referred to in one of the following ways:
NDAs are sometimes referred to as confidentiality agreements, designed to keep certain information that the employee may know a secret.
Under a non-disparagement agreement, an employee agrees not to make ‘disparaging’ comments about the company or any individuals that work there that could negatively affect reputations, harming their acquisition of both new clients and customers, and new employees.
Why might an employer include an NDA in a settlement agreement?
To prevent disclosure of the settlement figure
This stops you from divulging the terms within your settlement agreement, and the sum of money you were awarded in compensation for the separation between yourself and your employer.
To prevent acknowledgement that a settlement agreement exists
This legally prevents you from confirming that a settlement agreement was signed in the first place, potentially making the existence of a dispute less obvious.
To protect intellectual property
A company’s competitor would likely love to get their hands on the secret to their success, so it’s no surprise that the sharing of intellectual property is one of the things often legally forbidden through non-disclosure agreements.
To protect the identities of staff and clients
Some of the most sensitive information to an organisation may be the people that work there, and the individuals or businesses that they serve. Therefore, as part of an NDA, it may be that you’re not permitted to share the identities of these people or businesses to others.
To protect other confidential information
If, for example, you’ve worked in the finance department of a company, there may well be figures you’ve seen that the company would rather you didn’t share, so you may find that information like this is included in the NDA.
Should you seek legal advice on settlement agreements and NDAs?
It’s essential that both parties understand the implications of any non-disclosure clause, regardless of whether it’s part of a settlement agreement or as a standalone legal document.
An employment law solicitor can help ensure that employers draft agreements that stay inside the law, and that employees understand them and can confidently negotiate if necessary.
What can’t a settlement figure or non-disclosure agreement prevent?
Discussing salaries with colleagues
In the interests of equal pay, discussing the amount you’re paid isn’t something that an NDA or confidentiality clause can legally prevent you from.
Disclosure of illegal behaviour
If something needs to be brought to the attention of the police, a non-disclosure agreement can’t prevent you from doing so.
If you’ve spotted something at work that is wrong and could harm others, an NDA either inside or outside a settlement agreement can do nothing to prevent you from flagging it up. This is a ‘disclosure in the public interest’, and it cannot be silenced.
Choose 365 Employment Law for settlement agreement and NDA advice
We’re a settlement agreement solicitor in Sussex, who are on hand to help through the resolution of your employment dispute. This can include helping to draft and make sense of non-disclosure agreements and clauses, both for employers, and employees, to ensure the law is upheld and a compromise is reached that everyone is happy with. If you need help with an NDA, simply get in touch with us today and a member of the team will be on hand to help you.Back to News