Non-disclosure agreements may soon be prohibited or more difficult to enforce in Canada

21. February 2023 0

It is no secret that disputes ranging from human rights complaints to civil actions can arise between employers and employees. More often than not, these claims are settled prior to trial or a hearing.  As a condition of these settlements, employers will often require a release. Many employers place significant value on a confidentiality clause within the release. Generally, the confidentiality clause is a non-disclosure agreement (NDA) that places significant limitations on an employee’s legal rights to discuss the facts of the settlement.  For example, the employee may be limited in their right to discuss the circumstances of their settlement including the monetary amount and/or the underlying events/allegations (for example, the details of their allegations of sexual harassment in the workplace).  

In recent years, there have been some concerns raised regarding how confidentiality agreements and NDAs can serve to silence victims of sexual assault or sexual harassment.  Confidentiality agreements and NDAs may be prohibited in the coming months or years in many Canadian jurisdictions, based on recent trends.

Prince Edward Island’s Non-Disclosure Agreements Act, SPEI 2021, c 51 (the “Act”) came into force on May 17, 2022.   The Act was the first legislation of its kind in Canada. The Act is fairly broad with respect to the types of claims that can no longer be covered by NDAs unless certain criteria are met.   It is not limited to sexual harassment allegations in the workplace; it seeks to limit confidentiality clauses related to the settlement of any alleged discrimination or harassment claims.  The Act broadly defines harassment as “any action, conduct or comment that can reasonably be expected to cause offence, humiliation or other physical or psychological injury to illness or a person”.   An NDA can be permitted in some circumstances, including: (1) it must be the “expressed wish” of the employee alleging harassment or discrimination to be enforceable, and (2) they must have a reasonable opportunity to obtain independent legal advice.   If the criteria outlined in the Act are not met, the non-disclosure agreement will be unenforceable, and it may also attract a fine between $2,000 – $10,000.

Similar legislation was introduced in Nova Scotia and Manitoba, but it remains to be seen whether it will eventually be passed.   Ontario introduced a bill in the limited context of prohibiting non-disclosure clauses in cases of sexual misconduct by post-secondary faculty members. 

Knowing that non-disclosure agreements are being placed under more scrutiny, employers who want to use such agreements should make sure they are well drafted and there is the opportunity for the employee or former employee to seek independent legal advice.