Non-disclosure clauses in sexism and sexual harassment cases

On a first note, it’s important to emphasize that there can be many good reasons to enter into severance agreements and that severance agreements as a default includes a mutual confidentiality clause. What is special about the cases that now have been brought to light is that the non-disclosure clauses seem to have the purpose of broadening or targeting the duty of confidentiality towards the harassed party regarding the violation itself. This is in contradiction to a traditional severance agreement where the focus of the confidentiality clause primarily is on the terms of the agreement, and possibly also reiterates the general duty of confidentiality which would otherwise have applied, irrespective of the agreement.

The question in sexual harassment cases therefore is if it’s legal to enter into non-disclosure clauses with the sole purpose of silencing the harassed party regarding the violation. Another question is whether the severance agreement prevents the harassed party from filing a sexual harassment case later. We will not be discussing that in this newsletter.

Enforcement of non-disclosure clauses

Settlements are often reached between two parties who disagree on the facts of a case. In sexual harassment cases, it’s often word against word between the harasser and the harassed. A public statement on the sexual harassment can, if it cannot be proven, be defamatory, allowing the harasser to raise a claim against the harassed. Therefore, when a settlement is reached, both parties have a mutual interest in concluding the settlement, as they both avoid the risk and costs of a case.

A settlement reached directly between the parties involved, following legal advice on both sides, in the interests of both parties, with a balanced and reasonable outcome, to a full and final decision, will be binding upon both parties to a large extent. This also applies if the case is a matter of public interest. This is illustrated by a Danish case from 2016, where three employees in the Port of Aarhus had entered into a severance agreement in connection with a termination "for a full and final settlement on any issues between the parties". Subsequently, the Public Prosecutor's Office filed a lawsuit against the Port of Aarhus for having read the employees' text messages in violation of the rules on secret of correspondence. The question was whether the Public Prosecutor's Office was prevented from commencing public prosecution due to the severance agreement. When the parties entered into an agreement, the employees and their trade union were aware that the text messages had been read, and on that basis the Danish high court found that the Public Prosecutor's Office was prevented from prosecuting the matter.

The same logic cannot be applied when discussing a severance agreement between the company and the employee who was subject to the harassment. Here, the company cannot submit claims for compensation and does therefore not have the same interest in keeping the case closed. Instead, the company’s interest is more often - roughly speaking - to avoid mentioning of the matter in general, within the company or in public.

If a severance agreement imposes a duty of confidentiality on an employee regarding a matter where the employee would not usually be subject to confidentiality as part of the employment, the question of whether such a duty of confidentiality can even be enforced arises. So does the question of what the consequence of the breach of confidentiality is.

In this particular situation, the sole purpose of the non-disclosure clause is to ensure that the harassed employee does not tell the outside world about the harassment which took place. In a situation where the harassed employee would not otherwise violate their ordinary duty of confidentiality by speaking publicly about the offense. In a situation where you’re talking about matters in the public interest and which may violate the general moral perception. In that situation, it becomes relevant to look at whether such a non-disclosure clause will be disregarded in accordance with the so-called Danish Code from 1683 and its Section 5-1-2 on law and honour.

Section 5-1-2 of Danish Code has been applied in several cases concerning agreements on illegal work. In a construction case from 2014, where illegal work had been agreed, the Danish Supreme Court concluded, with reference to Section 5-1-2, that the agreement was invalid as it was contrary to common moral perception, regardless of whether the other legal norms had been violated. It’s also interesting that the Danish Supreme Court stated that Section 5-1-2 can be applied when the agreement violates the interests of others or society, even though neither party wants the agreement set aside.

There are several things that make agreements on illegal work and non-disclosure clauses in sexual harassment cases comparable. And if you look to other comparable areas, then the area of consumer agreements is also an fitting, where the Danish Consumer Ombudsman has stated that non-disclosure clauses are invalid as they are “unreasonable and contrary to honest business practice because they deprive the consumer of central rights such as freedom of speech and access to enforcement authorities and legal assistance”. It’s therefore not unlikely that the Danish courts would override extensive non-disclosure clauses used in severance agreements with reference to Danish Code or the general provisions on invalidity in the Danish Contracts Act.

At the same time, it’s important to emphasize that if the harassed employee chooses to go public with the case and cannot prove what has happened, the harassed employee risks a case of defamation. It’s known that HK, among others, now recommend that its members enter into so-called anonymity clauses, where the identity of the harasser and the company is not revealed, but still allows the harassed employee to share their story. Although that approach seems pragmatic, it has some shortcomings. On the one hand, it would be unclear what the consequences of breaching the clause should be, and on the other hand, it would be difficult for an employee to shed light on their story without revealing the identity of the company, and ultimately the harasser. The risk of breaching the contract and facing a possible case defamation therefore does not seem to be resolved with this approach.

A closer look at the use of penalties

As it will often be unclear what consequences a breach of a non-disclosure clause will have, it’s particularly interesting to look at whether it’s lawful to insert an agreement on penalty payment in the clause, which some agreements in cases on sexual harassment have had.

In a case from 2004, a company had inserted a section on penalty payment in the employment contract in case of violation of the loyalty clause, which, among other things, concerns the duty of confidentiality. The penalty amounted to DKK 50,000.00 in case of a breach. In the case, the Danish Eastern High Court found that the company could not demand the penalty from the employee but instead was limited to raising claims under section 4 of the Salaried Employees Act, which gives the right to half a month's salary in the event of material breach. The section on the penalty payment was therefore not enforceable.

The case has been subject to discussion by some authors but so far, it’s the only one of its kind, and the conclusion of the case is clear. Penalty payments in relation to employees’ confidentiality will probably not be enforceable.

Particularly in relation to public employers, it’s worth mentioning another case, from 2013. In this case, a municipality had inserted a penalty payment in a non-disclosure clause as part of a severance agreement. As part of the municipal supervision, the case was submitted to the Ministry of the Domestic and Health affairs, which was the relevant authority back then. After reviewing of the case, the Ministry stated that the non-disclosure clause, with regards to the part that went beyond what already followed from the Public Employees Act, was in breach of the Public Administration Act. The municipality could not, by agreement, extend the duty of confidentiality for the municipality's employees and former employees. It was therefore also illegal from the Ministry's point of view to impose a penalty for violation of the part of the non-disclosure clause that went beyond what already followed from the Act. Public employers are therefore subject to more wide-ranging protection against agreements on penalty payments in connection with non-disclosure clauses.

And, finally, it can be considered whether a penalty upon the employee is compatible with the Danish Act on Equal Treatment. Pursuant to the Danish Act on Equal Treatment, an employee can be awarded compensation if the employer exposes him or her to unfavourable treatment due to the person in question having raised an allegation of sexual harassment. And it must therefore be considered whether the imposition of an extended confidentiality and a penalty in itself is contrary to the Act, which then would trigger a right to compensation for the employee. This issue remains unresolved.

IUNO’s opinion

Companies should generally have a strategy and procedures in place on how cases concerning sexism and sexual harassment can be avoided, and how to handle such cases internally, should they arise.

Companies should be reluctant to enter into severance agreements and settlements aimed at settling any case between the harasser and the harassed employee, to which the company is not a direct party. And for the same reason, companies should be reluctant to impose confidentiality on employees that goes beyond the ordinary duty of confidentiality and the terms of the severance agreement itself.

In cases where the company enters into a settlement that aims to settle a claim of sexism or sexual harassment, it’s important that the settlement includes all parties relevant to the case, that it’s clear that the settlement settles the case, that the agreement is balanced for all parties and that all parties have received legal advice on the content of the agreement before it’s signed.