Are Non-Disclosure Agreements on their way out?

Included in Discovery: Atlantic Education & the Law – Issue 12

By Hilary Newman & Jacob Zelman

A non-disclosure agreement, or “NDA”, is a legal contract in which two or more persons agree to keep the information outlined in the agreement strictly confidential. NDAs are routinely used in the employment context – where an employee agrees not to disclose confidential employer information. However, they may also be used when an employer settles a legal claim with a complainant, including in situations where the complainant alleges they have been harassed by another employee. In the normal course, the employer will provide the complainant with a settlement payout, and in exchange, the complainant signs an NDA to keep quiet on the circumstances of the alleged harassment. A complainant who breaches an NDA by speaking out about the alleged harassment may be required to pay back the settlement payout to the employer.

In the summer of 2022, Hockey Canada came under fire for using an NDA when settling a lawsuit with a woman who claimed she had been sexually assaulted by eight unnamed Canadian Hockey League players.^[1] Publicity surrounding the details of the lawsuit, and the fact that Hockey Canada had settled sexual abuse claims with a National Equity Fund, added fuel to the public debate about whether NDAs are being misused by employers and organizations to protect harassers at the expense of complainants. Of course, the public discourse surrounding the misuse of NDAs is not new. Public criticism of NDAs was heightened by the Harvey Weinstein revelations which sparked the #MeToo movement. Campaigns such as “can’t buy my silence” have since been instituted for the purpose of ending “the misuse of NDAs to buy victim’s silence”.^[2] The critics of NDAs argue that preventing complainants from speaking out about the alleged harassment may allow the harasser to repeat their behaviour.^[3]

Before news of the Hockey Canada scandal broke, Prince Edward Island became the first jurisdiction in Canada to enact a law regulating the content and use of NDAs. The Non-Disclosure Agreements Act ^[4] (the “Act”) came into force on May 17, 2022. It prohibits persons alleged to have committed harassment from asking a complainant to enter into an NDA for the purpose of concealing the details of the complaint^[5] – except in cases where the complainant wishes to have an NDA.^[6] Persons who enter into an NDA that is not the “expressed wish and preference” of the complainant are guilty of an offence and liable to a fine between $2,000 and $10,000.^[7]

Although the Act became law on May 17, 2022 – making it applicable to settlements on or after that date, it is important to note that the Act also contains a retroactive provision that applies to NDAs entered into before May 17, 2022. This retroactive provision permits complainants bound by an NDA before May 17, 2022 to communicate the circumstances of the alleged harassment with an enumerated list of persons, including medical practitioners, psychologists, nurses, and social workers.^[8]

Prince Edward Island is not the only province to consider regulating NDAs. Bills that are almost identical to the Act were introduced in the spring of 2022 in Nova Scotia and Manitoba, but have yet to become law. The Nova Scotia bill passed first reading on April 7, 2022 and has yet to pass second reading.^[9] Manitoba’s bill passed first reading on November 29, 2022. It also has not yet passed second reading.^[10] In August of 2022, Senator Marilou McPhedran stated she planned to table a federal bill regulating NDAs.^[11] More recently, the largest professional association for lawyers in Canada – the Canadian Bar Association (“CBA”) – entered into the discussion on NDAs. At its annual general meeting on February 9, 2023, the CBA passed a resolution to:

1. promote the fair and proper use of NDAs as a method to protect intellectual property and discourage their use to silence victims and whistleblowers who report experiences of abuse, discrimination and harassment in Canada;
2. advocate and lobby the federal, provincial and territorial governments to enact changes to legislation and policies to ensure NDAs are not misused for the purpose of silencing victims and whistleblowers.^[12]

This resolution is a formal expression of the CBA’s intention. Given the important perspective the CBA brings to law reform in Canada, this resolution supports the message that action needs to be taken to reconsider the circumstances where NDAs should be used.

Those against the outright ban of the NDA in settling harassment claims argue that NDAs play a vital role in settlement negotiations. Organizations and employers are of course concerned with reputational risks associated with a complainant speaking out – and often the complainant’s allegations are disputed. Therefore, in return for the complainant’s silence about the allegations, the organization or employer gives the complainant a settlement payout and does not require the complainant to prove their allegations in court (something the complainant may or may not be able and/or willing to do).

While parties have traditionally been at liberty to negotiate the terms of an NDA, the current social movement to regulate the content and use of NDAs may limit this option in the future. Universities as employers should therefore exercise caution when settling discrimination or harassment claims and follow legislative developments in their province. Even in the absence of legislation regulating the content of NDAs, universities should be aware of the potential that a future law regulating NDAs may contain retroactive provisions. Such provisions may permit complainants to disclose details of the alleged harassment to certain persons. Universities should also consider whether an NDA prohibiting the complainant from disclosing the settlement amount should be negotiated separate and apart from an NDA that prohibits the complainant from speaking about the circumstances of the alleged harassment. Finally, it may be wise to stipulate in the NDA what is permitted to be communicated to the public about the settlement, especially if the allegations have already received public attention.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact the authors.

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[1] Ashley Burke, “Crisis on ice: What you need to know about the Hockey Canada scandal”, CBC Politics
[2] Zelda Perkins and Julie MacFarlane, Can’t Buy My Silence.
[3] Shane Ross, “Victims no longer silenced as landmark legislation takes effect on P.E.I.”, CBC News.
[4] Non-Disclosure Agreements Act, RSPEI 1988, c N-3.02.
[5] Ibid at s. 4(1).
[6] Ibid at s. 4(2).
[7] Ibid at s. 6.
[8] Ibid at s. 5.
[9] Non-disclosure Agreements Act – Bill 144, Nova Scotia Legislature.
[10] Bill status, Legislative Assembly of Manitoba.
[11] Ashley Burke, “Hockey Canada scandal shows the need to ban non-disclosure agreements, advocates say”, CBC News.
[12] Resolution 23-05-A, Principles to Prevent Misuse of Non-Disclosure Agreements in Cases of Abuse and Harassment, Canadian Bar Association.