Murray L. Murphy, K.C., CPHR, Katharine Mack and Kate Profit

Non-Disclosure Agreements (“NDAs”), legal contracts in which the parties agree to keep information outlined in the agreement strictly confidential, have been the subject of significant recent discourse.  NDAs are used in a variety of contexts, and are common in the settlement of employment-related disputes in Canada, including cases involving allegations of harassment and discrimination.  However, in recent years, stemming in part from the #MeToo movement, the use of NDAs in settling such claims has come under fire. 

Critics of NDAs have characterized them as a harmful tool, used to buy the silence of complainants by gagging them permanently and protecting the perpetrator and/or the reputation of the employer.  The proposed antidote is legislative reform which would either ban or restrict NDAs, as has recently been enacted in PEI and Ontario. 

However, other perspectives argue that NDAs remain useful as a method to resolving complaints without forcing a complainant to prove their case in a court of law, a process which can be lengthy, expensive, and potentially re-traumatizing. 

For example, the Manitoba Law Reform Commission recently published a 114-page report on The Use of Non-Disclosure Agreements in the Settlement of Misconduct Claims, which concluded that Manitoba should not introduce legislation to ban NDAs:

Respondents and defendants are much less likely to settle claims prior to trial or adjudication if they cannot be assured of a full resolution, including a limit on publicity. The probable consequence of essentially banning NDAs would be to force complainants to forego compensation altogether unless they are able to pursue their claim to trial or an adjudicated hearing.^[1]

The reality is that employers and employees may be incentivized to settle claims for a multitude of reasons, including consideration of the merits of the complaint, a desire to avoid the time and expense involved in a public hearing, and concern for the parties’ reputation and privacy interests.  Critics of NDAs must recognize that there is little incentive for an employer to pay money to an employee to settle a misconduct claim if the employee has free reign to also publicize the allegations or disparage the employer. 

This article cautions against using extreme cases of workplace misconduct to drive legislative reform that seeks to ban or restrict NDAs outright.  NDAs serve a legitimate purpose and should continue to be available to resolve cases of workplace misconduct in appropriate circumstances.

Criticism of NDAs in a post-#MeToo climate

In October 2017, reporters at the New York Times published an exposé regarding sexual assault and harassment committed by Harvey Weinstein against multiple actresses and former employees of the Weinstein Company.  The #MeToo movement began later that month, when actress Alyssa Milano urged people on social media to use the hashtag, #MeToo, to publicly share their own stories of sexual assault and harassment.^[2] This movement led to thousands of survivors speaking about the trauma, abuse and disrespect they endured

Closer to home, Hockey Canada has been widely condemned for entering into an NDA with a woman who was allegedly sexually assaulted by a group of players in 2018.

Some have pointed to these incidents as proof that NDAs cause more harm than good.  However, that view is not universally shared, and may ignore the complex and nuanced factors at play.

Author and lawyer Nico Bernardi has pointed out that Weinstein was able to keep his misconduct under wraps for so long by invoking the protections of confidentiality agreements, but noted that “#Me Too specifically – and … problematically – attacked NDAs as “the source of the problem””.^[3] Bernardi argues that survivors may benefit from settlements which include confidentiality provisions, and cautions against a blanket prohibition on confidentiality clauses.

Similarly, the Manitoba Law Reform Commission recently considered criticism of the use of NDAs, such as the potential silencing effect on complainants, potential harm to third parties who may become unsuspecting victims of serial perpetrators whose actions are hidden by NDAs, and the contribution towards a culture of silence, impunity, and tolerance of wrongdoing.^[4] However, after consulting with Manitobans, the MLRC recognized that complainants may also benefit from settlements including confidentiality clauses, and ultimately concluded that legislation governing the content and use of NDAs should not be enacted in Manitoba at this time:

Commentators have recognized a number of potential benefits of NDAs for complainants where they are crafted reasonably, and entered into in good faith, with adequate consideration and mutual consent. For instance, these agreements are said to protect the confidentiality and privacy of complainants and to provide them with closure; to shield complainants from further trauma and embarrassment that could result from a public hearing into a matter; to prevent unfair hiring practices of potential future employers who might otherwise perceive a complainant as litigious; to strengthen complainants’ bargaining power in settlement negotiation; and to restore in them a sense of agency and control.^[5]

Legislative reform

Some consider the solution to the perceived problem of NDAs to be widespread legislative reform, and proposed bills on this topic have been tabled in many jurisdictions.  However, there is no universal consensus on how best to address this issue, and the current applicable legal framework varies significantly across the Canadian provinces and United States.

As of June 2024, 18 of the 50 U.S.A. States have passed legislation which either completely banned or restricted the use of NDAs in prescribed circumstances.^[6] Following #MeToo, NDAs are generally prohibited or restricted in the employment context in the majority of these States in cases of sexual harassment or assault.  However, in other States, legislative prohibitions or restrictions against NDAs extend to all forms of discrimination, acts of retaliation and other contexts outside of the workplace, including landlord and tenant relationships.

To date, only two Canadian provinces have enacted legislation regarding NDAs, and the approaches taken are inconsistent.

In May 2022, 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^[7] prohibits persons alleged to have committed harassment or discrimination from entering into an NDA which have “the purpose or effect of concealing the details relating to a complaint of harassment or discrimination,”^[8] except where an NDA is “the expressed wish and preference” of the employee alleging harassment or discrimination.^[9] Where an NDA is lawfully entered into, it will be enforceable only where:

(a) the relevant employee has had a reasonable opportunity to receive independent legal advice;

(b) there have been no undue attempts to influence the relevant employee in respect of the decision to enter into the agreement;

(c) the agreement does not adversely affect the health or safety of a third party, or the public interest;

(d) the agreement includes an opportunity for the relevant employee to decide to waive their own confidentiality in the future and the process for doing so; and

(e) the agreement is of a set and limited duration.^[10]

In December 2022, Ontario enacted legislation which applies only to the use of NDAs by Ontario’s post-secondary institutions when addressing incidents of sexual misconduct involving staff and students. The Strengthening Post-Secondary Institutions and Students Act, 2022,^[11] focuses on protecting students and employees of post-secondary institutions. These changes provide exceptions where an institution may enter into an NDA, including if the student complainant has had reasonable opportunity to receive independent legal advice, is not under undue influence, and if the agreement is of a set and limited duration.

Private member bills regulating the use of NDAs have been tabled in several other provinces but have not become law.  In Nova Scotia, for example, the private member’s bill tabled in April 2022 stalled and the Government chose to conduct a jurisdictional scan.  The then-Minister of Justice eventually opted not to ban the use of NDAs in cases of sexual assault and harassment, concluding that it was a “complex issue” and citing the Manitoba Law Reform Commission’s report in support of its decision to make no further legislative change.^[12] In later discussions on the issue, Premier Tim Houston said:

Nobody wants to see non-disclosure agreements used to silence victims. But we believe that survivors should have the option to make an informed choice on whether or not to sign an NDA. We’re concerned about removing that option from survivors.^[13]

Benefits of NDAs

As noted by the Manitoba Law Reform Commission Report and Bernardi, NDAs can bring a plethora of benefits to both complainants and employers.

Firstly, NDAs protect the confidentiality and privacy of complainants.  Critics of NDAs focus on the fact that perpetrators benefit from NDAs because their privacy is protected but should not overlook the fact that NDAs may also serve a benefit to complainants by ensuring their identity is not made public.

Further, while critics point to the silencing effect that NDAs may have on complainants, there are numerous other factors which may play into an individual’s decision not to speak out.  Bernardi doubts that a ban on NDAs will encourage people to come forward to ultimately eliminate sexual harassment:

There are many other powerful reasons that prevent survivors from speaking out […] Studies suggest that the silence of survivors can be attributed to a variety of factors: fear that they will not be believed, fear of retaliation, shame, desperation, confusion, disbelief and the cost of litigation, among others.  In other words, confidentiality clauses are not the sole barrier to access to justice for survivors.  Given the array of other reasons that discourage survivors from coming forward, outright prohibition of these clauses is unlikely to reverse the general trend of silence among survivors.

Since the legislative reform discussed above is largely less than five years old, we still await academic studies from jurisdictions which have enacted new legislation prohibiting or restricting the use of NDAs to ascertain their effect on settlements.  However, there is a school of thought that in jurisdictions which have banned or restricted the use of NDAs, this will “reduce the likelihood of pre-trial settlement of disputes” since “respondents are much less likely to settle claims prior to trial or adjudication if they cannot be assured of a full resolution, including a limit on publicity.”^[14]

A recent study undertaken at Vanderbilt University examined whether a ban on NDAs actually deters the bad act and represented the first empirical assessment of laws barring confidentiality provisions in employment discrimination settlements.^[15] The Vanderbilt study highlighted that the primary concern with a ban on NDAs is that the prohibition relies on complainants coming forward with their claims, which may not happen, and that banning NDAs lessens the likelihood of settlement. The results suggested that “there may be a potential benefit of settlement NDA bans shining a light on the problem, but this benefit might come with the consequence of fewer survivors receiving compensation, thus reducing the likelihood that these laws truly deter.”^[16]

As noted, without a guarantee of non-disclosure and/or non-disparagement, employers will be disincentivized to settle complaints.  Practically, this means that complainants may face access to justice concerns, since an employer likely has greater resources to litigate.   

The Manitoba Law Reform Commission was also concerned with the fact that NDA legislation may be practically unworkable, creating contractual uncertainty and jeopardizing the interests of both complainants and respondents:

Of particular concern to commenters was the potential for such legislation to cause contractual uncertainty, a decrease in out-of-court settlements and increase in expensive, drawn-out, public and potentially contentious court hearings, the exacerbation of access to justice issues, and additional strain on an already backlogged legal system. Top of mind for many commenters was the practical unworkability of the enacted and contemplated statutory frameworks under review in this report, which, they argue, may ultimately render NDAs obsolete in this area, and jeopardize the prospects of settlement. This, the Commission heard, would not only impact respondents, who may wish to settle matters informally in order to avoid publicity, and to save time and costs, but complainants, who will have fewer opportunities to settle their disputes. These complainants may either have no other option but to settle a matter informally due to their financial circumstances and needs, or may desire an out-of-court settlement for a variety of reasons, including the preservation of their privacy, or the expedient resolution of an embarrassing or traumatic ordeal.^[17]

Conclusion – A happy medium?

The Manitoba Law Reform Commission Report identified several comments which highlighted concerns that critics of NDAs are using the egregious facts in extreme “outlier” cases, such as Harvey Weinstein and Hockey Canada, as the impetus to seek legislative reform to ban or restrict NDAs.  While several American jurisdictions rushed to enact legislation following the Weinstein allegations, almost every Canadian Province, with the notable exception of PEI, has remained circumspect about enacting legislation that prohibits NDAs in cases of workplace misconduct.

The obvious answer as to why may be because they have concluded that legislation is unnecessary.  No one condones the use of NDAs as a mechanism to continue abuse.  NDAs should never be used as a sword to prohibit complainants from reporting workplace misconduct that may be criminal in nature to the police.  However, NDAs may be beneficial as a tool to proactively compensate complainants and shield both parties from the trauma and expense that could otherwise result from a public hearing into the matter.

Complainants should never be forced to sign an NDA but should not be deprived of the agency to make the informed choice to do so as part of a broader settlement.  As with any contract, the complainant should also be given the opportunity to review the terms and seek independent legal advice if they wish.  The contents of the NDA can further be tailored to the circumstances, such as carving out an exception which permits complainants of workplace misconduct to disclose the incident(s) to their therapist or doctor for treatment purposes. 

By keeping the paramountcy of these principles in mind when drafting NDAs, employers and complainants may continue to mutually benefit from the use of NDAs without further legislative intervention.