Comment: Do confidentiality contracts serve their purpose?

Liam McMonagle, commercial lawyer and partner at Thorntons Solicitors, discusses the facts – and the possible future – of confidentiality agreements.

Sir Philip Greens confidentiality agreement proved ineffectual against Parliamentary privilege, says McMonagle.
Sir Philip Greens confidentiality agreement proved ineffectual against Parliamentary privilege, says McMonagle.

Are confidentiality agreements too readily used to cover up or suppress criticism of the rich and famous, as well as corporate wrongdoing?

Last year, it emerged that Portugal and Juventus footballer Cristiano Ronaldo had entered into an agreement with someone who had accused him of rape which included confidentiality undertakings. The headlines toward the end of last year also highlighted an injunction by business tycoon Sir Philip Green, preventing reporting of settlement agreements with employees who had made allegations of sexual harassment. The latter agreement ultimately proved useless to prevent Labour peer Peter Hain revealing Green’s identity under the protection of Parliamentary privilege during a session in the House of Lords.

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More recently, former attorney and Donald Trump confidante Michael Cohen has this year described in some detail how he used means such as confidentiality agreements in the US to suppress potentially damaging stories featuring, now presidential, client.

The fact that we are aware of events such as these make it clear that the effectiveness of these confidentiality agreements – at least in keeping potentially illegal activities private – is limited. Moreover, it is unlikely that they will be as effective in serving that purpose in future if current trends continue.

Most legal disputes that settle involve some kind of agreement being entered into by the parties involved. This will usually mean that payment is made in return for a claim or cause of action being given up. Anything with reputational aspects will usually involve the use of confidentiality clauses to ensure that the terms of settlement are kept private and to avoid any inferences being drawn as to what might have happened.

Liability is typically denied under these agreements and any payments will be expressed to be voluntary, or termed so-called “goodwill gestures”. This has been common practice for some time – superstar Michael Jackson entered into an agreement largely on these terms in relation to allegations of child sex abuse during the early 1990s.

For various reasons, concerns have been raised from various corners that it has become too easy for one person to buy the silence of the other, and in so doing to conceal details of behaviour or conduct for which he or she ought to be held properly accountable.

There are legal limits to this: duties of confidentiality cannot prevent the disclosure of criminal activities. The Public Interest Disclosure Act 1998 is intended to provide protection to employees who report on illegal and other wrongful activities on the part of employers. There is also a large body of case law where contract terms, including confidentiality clauses, which are aimed at achieving illegal purposes will not be enforced by the courts for policy reasons, though the law in this area can be complex.

Confidentiality agreements don’t just arise out of thin air, of course. They are carefully drafted by lawyers: regulated professionals, who have to meet certain standards of conduct. In England and Wales (which is where most of the UK’s high profile cases arise), the Solicitors’ Code of Conduct requires solicitors to “uphold the rule of law and the proper administration of justice” and act with integrity. Preparing an agreement that obliges a party never to make a good faith report of a crime or breach of regulations to the appropriate authorities may well be inconsistent with this regulation.

Even if a confidentiality agreement is fully enforceable, it is only useful for so long as the information it pertains to is kept secret. Once information is out there in the public sphere, the benefit may well be lost for good.

This is why all media outlets were free to report on Sir Philip Green’s naming in Parliament last October – the information had, in effect, been made public. If an agreement has been breached, there may be a right to sue for damages but often a financial remedy will be difficult to quantify and not really make up for the secrecy being lost.

Confidentiality agreements will, in all likelihood, remain crucial to businesses which need to protect the value of their inventions and genuine trade secrets. Their use as a means of covering up wrongdoing or embarrassing information to protect the rich and famous might, however, be about to come under some welcome constraint.

Even apart from that, their effectiveness has already been significantly undermined in various jurisdictions after the like of events, some cited at the beginning of this article. It would seem that the best way to protect one’s reputation is, as it always has been, to behave reputably.