Philip Green Case Revives the ‘Gagging Clause’ Debate

(Bloomberg Opinion) -- The naming of retail billionaire Philip Green as the British businessman alleged to have used legal agreements and payments to hide accusations of sexual harassment, racist abuse and bullying will revive concerns in the U.K. about private settlements that keep allegations of misconduct under wraps.

So-called “non-disclosure agreements” (NDAs) may have their uses. The risk is that a corporate culture has developed that regards secret settlements as no more than a cost of doing business — as though they are simply an ethically neutral operating expense. If so, it needs to end.

Green has categorically and wholly denied any suggestions of unlawful sexual or racist behavior, adding that he and Arcadia, his retail empire, take accusations and grievances from employees very seriously and investigate thoroughly if one is raised.

NDAs are, to some extent, consistent with the general preference in U.K. law to settle disputes out of court, even as high up as the Court of Appeal. Defendants and claimants may both want to avoid formal proceedings. The accuser of harassment will fear being branded a liar if they go to court. Assuming the defendant is wealthy or backed by a company, they’ll have a top-drawer legal team. The claimant faces a terrifying cross-examination.

It cuts both ways. A falsely accused executive and their employer may prefer a private settlement admitting no guilt over a time-consuming, expensive and stressful court case. Moreover, it is doubtful whether an NDA that sought to silence criminal behavior would be enforceable in the U.K.

Taking this view, NDAs can help targets of harassment and bullying get compensation for being wronged. But, when the accusations are well-founded, they also allow the rich and powerful to buy silence — perhaps at a cost that barely touches their personal wealth, or is picked up by their employer. That’s clearly wrong. The economics of going to court against a powerful business figure are sadly unbalanced.

The situation persists because finding a better way isn’t simple. Without NDAs, the incentive to settle is diminished. By the same token, if it becomes commonplace that NDAs are broken, powerful abusers will instead say “sue me if you dare, and I’ll set my expensive lawyers on you in court.” Targets of abuse might still balk at pursuing legal action. Result: alleged perpetrator gets off completely; alleged target is deprived of any kind of justice. Then again, if there was no option of a private settlement in such cases, that in itself could be a deterrent to abusive behavior.

Companies could certainly do more to help, even in this imperfect legal framework. A settlement between two employees may be the end of the matter between them. But it shouldn’t be the end of the matter between the alleged perpetrator and their company. Businesses should not rush to move on and see a settlement as drawing a line. They should keep asking questions about what happened and why.

Before the furor over Green, the U.K. parliament was reeling from a report into the sexual harassment and bullying of its staff, in particular by lawmakers. The debate started by the MeToo campaign may now be fueling a broader discussion about bullying in the British workplace, ranging beyond sexual harassment and assault. 

Intimidation, insults and humiliation might not always be criminal but they have no place in a modern organization. A well-run company, regardless of its ownership, should root out such behavior. Some businesses may deem that the benefits of retaining an offender who’s key to the organization outweigh the settlement costs. But any tendency toward incurious paying-off needs to end, and give way to one of active investigation and zero tolerance.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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