If contract law can ever be considered to be the shining star in a sordid sex scandal, the recent allegations surrounding the 45th US President, Donald Trump and adult film actress ‘Stormy Daniels’ are probably as close as it’s ever likely to get.
Most commercial managers and business owners are likely to have a loose familiarity with non-disclosure agreements (NDAs). Typically, these contracts are implemented in an attempt to protect the disclosure of trade secrets to third parties you are working with. Every now and then (but hopefully rarely!) they can form part of a settlement agreement to make sure that the outcome and nature of a dispute remains a secret to protect your, or another’s business. These uses clearly serve legitimate business needs, but can you use an NDA to protect yourself from more sinister secrets being revealed?
The ‘Stormy Daniels’ story has brought this question into the mainstream. Alongside the obvious political connotations, if the allegations turn out to be revelations, then President Trump could potentially face criminal action as adultery is a felony in some of the jurisdictions that it is said to have taken place.
So what role does the NDA play?
The suitability of a contractual document as a method of protecting secrets – even when legitimately used – can be debated at length. However, where NDAs have been used for less respectable purposes, such as hiding crimes or other issues of public interest, the position is becoming clearer.
The Solicitors Regulation Authority has recently issued guidance on this issue, highlighting that NDAs should not, amongst other things, stand in the way of reporting unlawful activity or other regulatory breaches. This means that even requesting that a professional adviser draws-up an NDA in order to try and protect you in such circumstances could result in your activity being reported, as well as a refusal to do so.
The Top 4 ways to use NDAs
- NDAs shouldn’t make the signing party feel as though they cannot notify regulators or law enforcement authorities of behaviour that should be reported.
- Firms, like Devant, who advise clients on the use of NDAs will still be required to report the subject of an NDA if it involves wrongdoing, such as harassment or other misconduct.
- NDAs shouldn’t be the subject of threatened litigation or other negative consequences where the subject is reportable (as above) in order to try and prevent disclosure.
- NDAs can still remain appropriate for protecting the outcome of most dispute settlement. However, this will be subject to the above. For example, if a dispute settlement surrounds an issue of criminality or public safety, an NDA will not prevent those particulars from being disclosed.
But what about those nefarious types?
MPs in the UK have already questioned lawyers in London over the use of NDAs to keep sexual harassment and inequality settlements out of the public eye, and all signs point towards a greater recognition by authorities and industry itself that such practices are not going to be tolerated.
When making decisions for your business, it is crucial to be aware of this. Threats of legal action by counter-parts whom you have discovered committing unlawful or improper activities should always be considered, and appropriate advice sought. However, it is likely to be more important to you and your business that you are doing the right thing and not getting caught out for complicity.
Hopefully, you will not find yourself in this position, but remember that Devant prides itself on its honest and forthright approach to business – if something isn’t right, we’ll let you know and help you to fix it.
Fraser Gleave
Junior Commercial Contracts Consultant
