Employment Law Coffee Break: A focus on NDAs and our August HR Pensions spotlight

There has been much media focus in July centred on the government's announcement on proposed wider reforms to non-disclosure agreements (NDAs), as part of the government's wide-ranging employment law reforms in the current Employment Rights Bill (ERB).

The Ministry of Justice has also published its guidance on the use of NDAs in the context of criminal activities – under new legislation, an NDA will be unenforceable from 1 October this year where it fails to enable a victim of crime from making a "permitted disclosure" as provided for by the legislation.

As well as ensuring compliance with the legal requirements around NDAs, it is important to remember that the use of NDAs should always be considered on a case-by-case basis and tailored appropriately.

NDAs in the context of criminal activities

From 1 October, victims of crime will be legally permitted to make certain disclosures – that is, those to prescribed people or bodies for specific purposes related to the relevant criminal conduct. An NDA that seeks to prevent a "permitted disclosure" will be void.

Who is a victim of crime?

A victim of crime is defined as someone who has suffered harm (defined to include physical, mental or emotional harm or economic loss) as a direct result of being subjected to criminal conduct. It also includes other circumstances such as where a person has suffered harm as a direct result of having seen, heard or otherwise directly experienced the effects of criminal conduct. There does not need to be a formal investigation or a conviction for someone to be a victim of crime or a requirement for that person to have told anyone or reported it to the police.

A victim of crime includes a person who reasonably believes they are a victim of crime.  

What disclosures are permitted?

Permitted disclosures encompass disclosures to:

• Police or other bodies that investigate or prosecute crime, which include the Health and Safety Executive, the Competition and Markets Authority, the Environment Agency, the Gambling Commission, the Financial Conduct Authority, the Information Commissioner's Office and the Serious Fraud Office.
• Qualified lawyers regulated by an approved regulator for the purpose of seeking legal advice about the relevant conduct (and which also includes the law firm).
• Any individual who is entitled to practice a regulated profession for the purpose of obtaining professional support in relation to the relevant conduct. The guidance provides examples of a paramedic, a social worker or a school teacher providing professional support.
• Victim support services that provide confidential and independent support to individuals affected by crime helping them cope, move forward and understand the entitlements they can expect to receive. The guidance provides examples of helplines, therapeutic support and advocacy. Disclosures will be permitted to victim support services for the purpose of obtaining support from that service in relation to relevant conduct which helps victims cope and recover from the impact of the crime. The guidance states that this includes health and care professionals, for example, a counsellor whose roles are underpinned by clear principles of confidentiality. Victims of crime will also be able to share information with voluntary-sector services, such as an independent sexual violence advisor, who also follow strict confidentiality principles.   
• Regulators for the purposes of co-operating with them when they are investigating relevant conduct. Examples of regulators in the guidance include the General Medical Council and the Solicitors Regulation Authority. However, the new statutory provisions do not permit proactive disclosures by victims of crime to report information about a crime to a regulator directly which would be done by the police.
• Persons authorised to receive information on behalf of the groups listed above for the permitted purpose. The guidance gives the example of a receptionist at a law firm who is authorised to receive information on behalf of qualified lawyers working at the firm for the purpose of a victim seeking legal advice about relevant conduct.
• Close family – their child, parent or partner (a person is a partner of another if they are married to each other, in a civil partnership or in an intimate personal relationship with each other which is of significant duration) - for the purpose of obtaining support in relation to that crime.

A disclosure made for the primary purpose of releasing information into the public domain will not be a permitted disclosure, with the guidance giving the example of a person talking about the relevant conduct to a qualified lawyer with the intention of the lawyer acting as a spokesperson to publicise the information.  

Draft regulations, which are also expected to come into force on 1 October, will widen the scope of permitted disclosures and will include disclosures to the Criminal Injuries Compensation Authority for the purpose of a claim for compensation in relation to the relevant criminal conduct and disclosures to a court or tribunal for the purpose of issuing or pursing any proceedings in relation to a decision of the Criminal Injuries Compensation Authority made in connection with a compensation claim.

What does this mean for employers?

The new legislation is "prospective" – meaning it will apply to NDAs that are signed on or after the date that the new law comes into effect (1 October 2025). NDAs that already exist or are signed before this date will be subject to the current rules and therefore might still be enforceable in certain situations.

In line with the government guidance, employers should ensure that they understand the change to the law and that they understand the implications for their business; the new law does not only apply to employment relationships and may therefore need to be factored in where NDAs are used in other situations. Internal guidelines on use of NDAs will need to be updated and appropriate training provided for relevant staff.

Template settlement agreements, COT3s and other applicable contracts will also need to be checked and, as necessary, appropriate wording inserted for any agreements entered into on or after 1 October. Many employers already provide comprehensive carve-outs to any NDA included (and which will go further than this new legislation) but it will be important to now review any provisions – government guidance states that "best practice will be to make clear on the face of the NDA what parties are able to disclose in particular circumstances and make clear what those circumstances are (specifically those mentioned in the guidance)".  

The new legislative provisions do not impact on the current common law position that an NDA, irrespective of its terms, cannot validly seek to prevent a person from making disclosures to the police or appropriate regulatory or statutory bodies in relation to a criminal offence or protection provided under the Employment Rights Act 1996 in respect of whistleblowing or the Official Secrets Act 189 in respect of information related to security, intelligence or defence.

Further reforms to NDAs in the pipeline

Reform of NDAs more widely continues to be a focus of debate. While no provisions relating to NDAs were included in the Employment Rights Bill when it was first presented to parliament, a new clause has now been inserted into the bill which, if passed, will make an NDA void in so far as it purports to preclude a worker from making an allegation of or disclosure of information relating to relevant harassment or discrimination, or an employer's response to harassment or discrimination or its response to the making of the allegation or disclosure. However, the draft provision provides that the restrictions will not apply to an "excepted agreement".  

What is relevant harassment and discrimination?

Under the current proposals, harassment or discrimination falling within the specified sections of the Equality Act 2010 will be "relevant" if it consists of, or is alleged to consist of, conduct of the employee or another of the employer's workers; or the actual or alleged victim is the worker themselves or a fellow worker. On the current drafting, relevant harassment or discrimination does not include allegations of a failure to make reasonable adjustments or of victimisation (although an employer responding to a relevant allegation by victimising a worker would seem to be covered).   

Employers should also note that provision is made for regulations to extend the category of workers coming within the ban to include; for example, those undertaking or who have undertaken work experience or training in specified circumstances and independent contractors.

What is an excepted agreement?

Provision is made for an "excepted agreement" to be outside the scope of the new provisions provided it satisfies specific conditions.

The government press release states that settlement agreements will not be excepted as of right stating "if passed, these rules will mean that any confidentiality clauses in settlement agreements or other agreements that seek to prevent a worker speaking about an allegation of harassment or discrimination will be null and void. This will allow victims to speak freely about their experiences and their employer able to support them publicly".

However, an impact assessment accompanying the proposed revisions to the ERB indicates that where an agreement is requested by a worker this may be outside of the new provisions stating that while "the option of confidential settlements will remain (where requested by the worker), the reduced ability for employers to impose NDAs may lead to more disputes progressing to formal resolution channels".

What does this mean for employers?

We must wait and see what form any final provision on this takes in the Employment Rights Bill when it receives Royal Assent and, in particular, the scope of excepted agreements.

One of the reasons why employers may enter into a settlement agreement with an individual is to draw a line under the allegations and address, through compensation and other agreed measures, issues where the employer's approach could be the subject of scrutiny were the matter to proceed before an Employment Tribunal or otherwise enter the public domain. Alongside the government's proposals to toughen the protection against harassment which is already provided for in the ERB, the proposed reforms around NDAs highlight the need for employers now, more than ever, to look at their internal culture and processes and how complaints and allegations of harassment and discrimination are dealt with.

A separate ban on NDAs in relation to sexual abuse, sexual harassment, sexual misconduct and other types of bullying or harassment in higher education settlings comes into force on 1 August 2025

August HR Pensions Spotlight: Death in service lump sums to remain IHT free

The government has confirmed that its proposals to bring unused pension funds within the scope of inheritance tax (IHT) from 6 April 2027 will not extend to lump sum death in service payments.

Many employers pay a lump sum death benefit (typically a multiple of salary) if an employee dies in service. These payments are provided either by an employer sponsored pension scheme or a standalone death in service scheme (or group life trust). Death in service benefits tend to be paid under discretionary trusts, requiring the scheme to be set up under trust and the scheme's trustees to exercise discretion over who amongst the employee's beneficiaries and relatives should receive the lump sum. These discretionary payments are currently payable IHT-free, in contrast to non-discretionary death in service payments made by certain public sector pension schemes, including the NHS', where IHT might be payable in some circumstances.

Under the proposals as originally published, it was not clear whether the government would be bringing discretionary lump sum death in service payments made by registered pension and death in service schemes within the scope of IHT from 6 April 2027. Registered pension and death in service schemes are those registered with HMRC for tax purposes. If the government had done this it would have meant that all lump sum death in service benefits payable by registered schemes (whether the payments were discretionary or non-discretionary) would potentially have been in scope for IHT. In contrast, discretionary lump sum death in service benefits payable by excepted group life trusts would have remained out of scope for IHT.  Excepted group life trusts tend to be used for higher earners as a means of excluding the benefits payable from the lifetime allowance and lifetime lump sum limits applicable only to registered schemes. 

The government has accepted that these distinctions should be removed; therefore, it has confirmed that, from 6 April 2027, all lump sum death in service payments payable by registered pension and death in service schemes (whether under discretionary trust or not), will be out of scope for IHT.

Osborne Clarke comment

This change is welcome. Death in service benefits provide a vital source of funds for bereaved families. The change will mean that trustees of existing registered discretionary schemes will continue to be able to distribute lump sum death in service benefits under their current processes. Where the lump sum death in service benefits are provided from a pension scheme or alongside other death benefits it will, however, be necessary to check with advisers whether any of those other benefits are caught by the April 2027 change and so risk being subject to IHT after that date.

Where discretionary trusts apply, there are already a number of "elephant traps" for the unwary, particularly where an employee's family circumstances are complex. A robust process will be required to demonstrate that the rules have been followed and that relevant factors (and no irrelevant factors) have been taken into account

Trustees and administrators of pension and death in service schemes with non-discretionary lump sum death in service benefits will need to update their processes and member literature before 6 April 2027 to reflect the fact that these lump sums are no longer at risk for IHT.

Please contact Claire Rankin or your usual Osborne Clarke contact if you would like more information or assistance.