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Settlement agreements: what are gagging clauses?

View profile for Martha McKinley
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A guide to disciplinary proceedings within the accountancy profession

There has been an increased focus in the media on so called “gagging” clauses, often referred to within the context of “non-disclosure” agreements (NDAs).  In actual fact, the majority of these type of clauses are found in settlement agreements (formerly known as compromise agreements) which are typically used to bring an employment relationship to an end, rather than NDAs which are more common in a commercial or corporate context.

But what can an employee expect to see when being asked to agree to one of these clauses, and how common are they in practice?

While a gagging clause sounds quite dramatic, when reviewing a settlement agreement the relevant section is usually referred to as a "confidentiality clause". Typically it prevents an employee from revealing the fact of, and terms of the settlement agreement to anyone other than immediate family or as may be required by law. The clause can also go on to prevent the circumstances surrounding the termination itself being discussed. A paragraph drafted in these terms is one of the most common provisions within settlement agreements and usually is not in itself cause for concern.

While this restriction can feel onerous from the employee’s perspective, it is usually included to give the employer reassurance that the dispute at hand will be brought to an end by the conclusion of the agreement. Furthermore, the employer will wish to minimise the possibility of other employees finding out the details of the settlement package offered, and drawing (possibly incorrect conclusions) from this, or demanding a similar package in different circumstances.

Notwithstanding this, an employee should be careful that they fully understand the extent of the restrictions imposed by a confidentiality clause before they commit themselves to the agreement. There are several situations in which they may wish to reserve their right to disclose details regarding the circumstances relating to their termination, and an adviser experienced in dealing with settlement agreements will be able to outline these and suggest appropriate wording to modify the agreement.

Should you be considering entering into a settlement agreement with your employer and require advice and/or assistance in doing so, please contact a member of our employment team on 0175 321 6399.

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