Canadian developments on use of NDAs in settlements

Introduction

Part of embracing equity on International Women's Day includes ongoing work to effectively address discrimination and harassment at the workplace.

Over the past five years, there has been increasing advocacy in Canada for laws that protect survivors of discrimination and harassment – particularly with respect to placing limitations on the use of non-disclosure agreements (NDAs). Recently, on 9 February 2023, the Canadian Bar Association passed a resolution discouraging the use of NDAs to silence whistle-blowers and victims of abuse, discrimination and harassment.

This article describes:

the use of NDAs in settlement agreements in Canada;

recent legislation in Canada that limits the use of NDAs in cases involving discrimination and harassment; and

the potential impact of these changes on the Canadian legal system.

Use of NDAs in resolving workplace misconduct claims

Laws that enable parties to arrive at private settlement agreements promote the resolution of workplace misconduct claims without the significant cost, resources and emotional energy of an adversarial legal process of a trial, hearing or arbitration.

It is a very common practice for Canadian lawyers to include some form of an NDA in the terms of a settlement agreement, whether such an agreement is specifically requested or not. Given how common the practice has become, lawyers do not always stop to consider the purpose of including NDAs as a standard term in settlement agreements, what they are intended to address, and their impact on survivors and the public.

Purpose of an NDA

Even without an NDA, Canadian laws limit the permissible disclosure of certain facts relating to a discrimination and harassment complaint.

"Without prejudice privilege" applies to all settlement discussions to protect the confidentiality of the communications and information exchanged for the purpose of settling a dispute. This includes information exchanged in negotiations between counsel or negotiations between the parties directly. The privilege is automatic – no express agreement is required. Privilege may be lifted if necessary for one of the parties to prove the existence or scope of the settlement, and may also be waived in certain circumstances, where both parties agree.

Privacy laws prevent organisations from disclosing personal information about an individual, including a survivor, witnesses or the harasser. There are exceptions, including for complying with applicable laws, disclosure in legal proceedings or the use of information for journalistic purposes.

Under the common law, employees owe a duty of good faith, loyalty and fidelity to their employers, which means that employees must maintain confidentiality of trade secrets or other confidential information. Whistle-blowers are expected to take an "up the ladder" approach within the organisation, by exhausting available internal disclosure protections before going public.(1) This common law obligation is often included in employment contracts or policies.

NDAs may serve to close gaps in existing laws by, for example, placing restrictions on an individual, as a term of settlement, thus restricting them from disclosing their own experiences or other information gathered outside of settlement discussions once they are no longer employed by the organisation.

The primary purpose of an NDA is often to protect the parties' reputations. Both the employer and employees involved in allegations of harassment and discrimination have a legitimate interest in limiting public disclosure and debate that could damage their ability to work and operate their business. By settling, the parties agree to forego the extensive factual and legal analysis that is imposed by the rule of law. The NDA prevents a "trial by media", where the public decides credibility, guilt or innocence without legal protections relating to relevance, credibility, privilege and other evidentiary rules.

How are NDAs used during settlement?

In Canada, NDAs normally appear in two types of settlement agreements. The first is in an agreement with the survivor, to settle a constructive dismissal action or complaints under human rights or health and safety legislation. The NDA prevents the survivor from speaking to third parties – including the media, other organisations or other third parties – about the underlying circumstances of the complaint. There are carveouts for disclosure that is required by law, and often, for disclosure to the individual's immediate family members, financial and health advisors, if they also agree to maintain confidentiality over the information.

The second is when the employer reaches a settlement with an alleged harasser, when that respondent denies the wrongdoing and demands reinstatement or damages for wrongful dismissal. The survivor is not a party to this agreement – but it is common for counsel for the alleged harasser to require the employer to ensure that the survivor does not disclose information about the complaint, particularly if the survivor continues to work for the employer. The NDA applies to the employer and its representatives. Again, disclosure that is required by law is exempt from the NDA.

Impact of an NDA

The NDA precludes individual employees from discussing the facts relating to discrimination and harassment, including to others who have experienced abuse, to the media, and to prospective employers of the harasser.

The potential harm of NDAs relates both to the individual impact on the survivor, and the public interest in being aware of discrimination, harassment and abuse. As examples:

The survivor is unaware of others who have experienced the same or similar conduct, who could support healing and connecting.

The public is unaware of the extent of the harm and therefore unable to consider whether there are broader, more systemic, issues that could be taken to prevent abuse, harassment and discrimination.

It is possible for the harasser to secure new employment, without information of an assault or other serious misconduct being disclosed to the new employer. This is particularly concerning where the work involves vulnerable individuals who may be at greater risk of abuse, such as in health care or education.

In response to these potential harms, there have been recent calls for measures to restrict the use of NDAs in Canada.

Recent legal developments in Canada

In May 2022, Prince Edward Island (PEI) became the first Canadian province to regulate the use of NDAs when its Non-Disclosure Agreements Act came into force.

The Act prevents the use of NDAs where a person has experienced or alleged harassment or discrimination and where the NDA effectively conceals details of the allegation. The legislation provides that:

4(1) Other than in accordance with subsection (2), no party responsible or person who committed or who is alleged to have committed harassment or discrimination shall enter into a nondisclosure agreement with a relevant person where

1. The relevant person has experienced or made allegations of harassment or discrimination

2. The non-disclosure agreement has the purpose or effect of concealing the details relating to a complaint of harassment or discrimination.(2)

This legislation focuses on the rights and consent of the survivor of discrimination and harassment. It is not intended to preclude the parties from using an NDA to protect the privacy of the complainant, and an NDA is permitted if it is the expressed wish and preference of the person who experienced or alleged the harassment or discrimination.

Similar legislation was enacted in Ontario in December 2022 with respect to the use of NDAs by that province's post-secondary institutions when addressing incidents of sexual misconduct involving staff and students. The Strengthening Post-Secondary Institutions and Students Act, 2022 amends the Ministry of Training, Colleges and Universities Act, and the Private Career Colleges Act, 2005.

The Ontario Act focuses on protecting students and employees of post-secondary institutions. Similar to the PEI legislation, the Ontario Act provides that an NDA that provides for a blanket prohibition on the disclosure of an allegation or complaint of sexual misconduct against an employee is unenforceable, with an exception to NDAs that are requested by the student (in specific circumstances).

The Ontario legislation also addresses the harm caused when an abuser leaves one educational institution for another, and their misconduct remains a secret due to an NDA. The legislation prohibits an institution from re-hiring an employee who has committed sexual misconduct and is discharged or resigns as a result. Institutions governed by this legislation are also required to implement a sexual misconduct policy that outlines rules on sexual behaviour involving employees and students, and examples of disciplinary measures for contravention. This policy must be in place by 1 July 2023.

These provinces are the first to implement this legislation, but a number of other Canadian provinces are undertaking a similar review. In November 2022, the Manitoba Liberal Party introduced a private members' bill to limit the use of NDAs to prevent situations in which survivors of harassment and discrimination would be stopped for speaking out about their experiences.(3) Along with Manitoba, the Premier of Nova Scotia stated that it felt "the urgency to do a jurisdictional scan" to determine what position the province would take towards NDAs and their governance.(4)

Impact on legal system and employment lawyers

As indicated by the above examples, policymakers recognise the potential harm that results when NDAs prevent the disclosure of workplace harassment and discrimination. The policy trend favours transparency in allegations involving discrimination and harassment over the reputational protection of the employer or accused harasser.

Legislative reform and judicial decisions are likely to continuously evolve this area of employment law over the coming years. The impact on the parties and legal system is still unknown. It is possible that fewer claims will be resolved outside of legal proceedings – because, for example, concerns for "trial by media" are enough to refuse to settle – but that remains to be seen.

An ongoing review will likely be necessary to determine whether these laws, in fact, reduce harm to survivors and increase transparency to the general public. As an example, the laws allow the survivor to consent to an NDA. The law could be rendered practically ineffective in a case where the harasser insists on the NDA to settle litigation, and the survivor agrees to the NDA in order to avoid having to participate in further legal proceedings. It is yet to be seen whether an alleged harasser's insistence on pursuing litigation could be considered undue influence under the legislation.(5)

However, one thing is now quite clear. These legislative changes have a significant impact on the role of legal counsel in harassment and discrimination claims. The practice of automatically including NDAs in all settlement agreements is no longer consistent with lawyers' obligations to properly advise their clients. When drafting settlement agreements, legal counsel is responsible for considering the enforceability of an NDA in light of recent legislative changes, weighing the legitimate interest of including an NDA against the potential harm to the survivor and the general public and advising their clients accordingly.

For further information on this topic please contact Jillian Frank, Maciej Lipinski or Qasid Iqbal at KPMG Law by telephone (+1 416 777 8000) or email (jillianfrank@kpmg.ca, mlipinski@kpmg.ca or qasidiqbal@kpmg.ca). The KPMG Law website can be accessed at www.kpmg.com.

Endnotes

(1) Merk v International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC 70 at paras 23-28. Of note is the following quote from Arbitrator Weiler, cited by the Supreme Court of Canada:

The duty of fidelity does not mean that the Daniel Ellsbergs and Karen Silkwoods of the world must remain silent when they discover wrongdoing occurring at their place of employment. Neither the public nor the employer's long-term best interests are served if these employees, from fear of losing their jobs, are so intimidated that they do not bring information about wrongdoing at their place of employment to the attention of those who can correct such wrongdoing. However, the duty of fidelity does require the employee to exhaust internal "whistle-blowing" mechanisms before "going public". These internal mechanisms are designed to ensure that the employer's reputation is not damaged by unwarranted attacks based on inaccurate information. Internal investigation provides a sound method of applying the expertise and experience of many individuals to all problems that may only concern one employee. (Emphasis added.)

(2) SPEI 2020, c 51, section 4.

(3) Ian Froese, "People silenced by non-disclosure agreements speak out at hearing for Manitoba Liberal bill", online: CBC/Radio Canada.

(4) Frances Willick, "Premier says people aren't 'forced' to sign NDAs; advocates say coercion a factor", online: CBC/Radio Canada.

(5) Supra, note 2, section 4(3)(b).