The defamation risk of limiting the use of NDAs in resolving workplace sexual harassment claims

Key points

1. Employers will have different risk appetites and values propositions which may impact the preferred approach to resolving workplace sexual harassment matters and the extent to which they are willing to accept the risk of defamation that arises in those scenarios. This article aims to provide an up to date insight into the current state of Australian defamation laws in this context, in light of concurrent defamation and workplace sexual harassment law reform.
2. The current state of Australia’s defamation laws give rise to a risk that both individual complainants and employers could be held liable for defamation when complainants are permitted to speak publicly about workplace sexual harassment matters in Australia.
3. Employers should adopt a case-by-case approach to the use of NDAs and confidentiality agreements that balances the interests and needs of the complainant with the risk that a defamation claim might be brought by the alleged perpetrator, as well as the priorities and values of the organisation in the circumstances.

Introduction

In the aftermath of Australia’s #MeToo moment,  the laws regarding sexual harassment and defamation have received increased scrutiny and law reform intervention.  Underpinning both claims of legal action sit fundamental human rights: the right to be free from violence and discrimination at work, and the right to privacy and reputation. These are universal and indivisible human rights at the core of Australia’s legal and regulatory frameworks in respect of sexual harassment and defamation respectively.

However, the current state of Australia’s defamation laws has been criticised for operating in detrimental tension with the objects of sexual harassment laws, causing further harm to complainants of sexual harassment. When an allegation of workplace sexual harassment is made by an employee, defamation laws in Australia have the power to be used as both a shield and a sword by the accused.

In this context, we discuss the extant risk of defamation associated with current advocacy and law reform momentum calling for a diminution of the use of confidentiality and non-disclosure agreements in workplace sexual harassment claims.

National Inquiry into Workplace Sexual Harassment – Respect@Work

In March 2020, Australia’s Sex Discrimination Commissioner, Kate Jenkins, delivered the Respect@Work Report following the fourth National Inquiry into sexual harassment in Australian workplaces.¹ The Respect@Work Report identifies that Australia’s current legal and regulatory system is no longer “fit for purpose”² and recommends a new model that is evidence based, victim focused and improves the coordination between anti-discrimination, employment and work, health and safety schemes.³

The use of non-disclosure agreements or confidentiality clauses in settlement agreements (NDAs)⁴ by employers when resolving complaints of workplace sexual harassment was a topical issue that arose during the National Inquiry.⁵ The issue was catalysed by #MeToo, which exposed how Harvey Weinstein had weaponised the use of NDAs and secrecy clauses to protect himself and evade accountability.

The Respect@Work Report discusses the benefits of using NDAs in sexual harassment matters, including that NDAs protect complainants’ privacy and confidentiality,  and provide them with closure. However, on the other hand, the Respect@Work Report also highlights a concern that NDAs are often used to protect the reputation of employers and perpetrators, and therefore contribute to a culture of silence.⁶

Governments and corporate Australia are currently tackling the implementation of the Respect@Work recommendations, which include a number of legal and regulatory reforms and recommendations for increased employer due diligence in preventing and responding to workplace sexual harassment.

Recommendation 38 of the Respect@Work Report recommends the development of a practice note or guideline that identifies best practice principles for the use of NDAs in workplace sexual harassment matters. The Attorney-General’s Department, with the support of the Fair Work Commission and in consultation with the Respect@Work Council, has been developing this guidance material.  It is anticipated that these guidelines will be released this year.⁷

Meanwhile, the issue of the appropriate use of NDAs by employers in sexual harassment matters has been at the centre of debates regarding how employers should reform their responses to complaints of workplace sexual harassment.

Options for better practice by employers have included a broad spectrum of approaches to the use of NDAs, ranging from a blanket prohibition on NDAs in sexual harassment matters (unless a victim requests it) to permitting factual information to be disclosed as part of settlement agreement but allowing parties to request the settlement amount remain confidential. There are also calls for the introduction of mandatory de-identified reporting regimes (instead of a prohibition on NDAs) and that NDAs be made subject to a mandatory cooling-off period.

A blanket policy approach to the issue, such as where confidentiality clauses are routinely drafted in a way to preserve the confidentiality of the settlement amount, but otherwise allow the complainant to speak publicly about the facts of the complaint (or some other variation of this approach), can be problematic from a defamation perspective.⁸ While this approach is victim-centric and aligned with the Respect@Work recommendations, due to the current state of Australia’s defamation laws it can create legal risk for the individual complainant and the employer.

Current state of Australia’s defamation laws

In all Australian jurisdictions, in order to establish a cause of action in defamation in respect of a particular communication, a plaintiff must establish the following three elements:

1. the communication has been published to at least one person other than the plaintiff;
2. the communication identifies (or is about) the plaintiff; and
3. the communication gives rise to defamatory “imputations” (or meanings), which tend to damage a person’s reputation, or will expose them to hatred, contempt or ridicule.

Defamation law applies to the publication of almost all forms of communication (i.e. both verbal and written). As a result, most forms of communication used by a complainant to report  sexual harassment will inherently give rise to a risk of defamation. In the workplace, this risk is most likely to arise in circumstances where a complainant:

1. reports an allegation of sexual harassment to at least one person (other than the alleged offender), including to a colleague or a representative of the employer; and/or
2. speaks publicly about their experience (e.g. to the media or their friends/family) following the settlement of a sexual harassment matter.

Generally speaking, any communication made by a complainant to the effect that Person X engaged in unwelcome sexual conduct or made unwelcome sexual advances towards them at work will give rise to the natural and ordinary meaning that “Person X sexually harassed/acted unlawfully towards the complainant”. Given its gravity and community attitudes towards sexual harassment, this meaning will usually be defamatory because it clearly has the potential to diminish the reputation of a person in the eyes of others.

The risk of defamation is greater in those circumstances where the alleged offender is expressly named by the complainant. However, the risk of defamation also arises in those circumstances where a complainant communicates an allegation, but does not expressly identify the alleged offender. This is due to the operation of “true innuendo”.

True innuendo refers to those cases where a defamatory imputation arises from a statement that is published to a person(s) with special knowledge of an extrinsic set of facts (i.e. matters outside of the general knowledge of the community). For example, a female complainant might make a public statement to the effect that she was groped by a male colleague during a meeting on X date (without naming the colleague). Whilst most members of the public will not know which male colleague the complaint is referring to, if the statement is made to a person with knowledge of additional facts, such as when the meeting occurred and which male colleague attended the meeting with the complainant, the male colleague becomes identifiable and the imputation that he sexually harassed the complainant is attached to him.

Potential Liability of employers

The risk of defamation is not limited to complainants. An employer can also be held vicariously liable for any alleged defamatory statements made by the complainant within the scope of their employment, notwithstanding that a complainant might not have had authority to publish that matter, and the employer had no knowledge of the publication.

 Accordingly, if a complainant discloses a sexual harassment matter in the wider domain in the course of carrying out their duties as an employee, the alleged offender will be entitled to sue both the complainant and their employer for defamation.

Similarly, the repetition of another person’s defamatory statement constitutes a new and separate cause of action for defamation. Accordingly, employers can also be held directly liable for the re-publication of alleged defamatory statements made by a complainant notwithstanding that they are simply repeating the assertions made by another person. For example, this might apply if an employer wants to issue a statement in support of a complainant, or seeks to report the matter to the relevant investigatory authority.

Current defences

There are two key defences that are likely to arise in the context of the disclosure of sexual harassment matters. They are “qualified privilege” and “justification” (also known as the “truth defence”).

Justification

It is a defence to an action for defamation for the defendant (i.e. in this context, the victim or complainant of sexual harassment) to prove that the matter published was true. In order to make out the defence, the defendant bears the onus of proving that the defamatory imputations conveyed by the matter complained are substantially true.

In sexual harassment matters, the truth defence can be very difficult to prove because the alleged behavior usually takes place in private with no third party witnesses or documentary evidence, and the only evidence available is often the complainant’s word against that of the alleged harasser.

Significantly, we consider that complainants and their employers will also find it difficult to rely on this defence in those circumstances where an early settlement has been reached or where an investigation is not possible or practicable in the circumstances. If this occurs, and a complainant is  permitted to speak publicly pursuant to the terms of sexual harassment settlement, but is later sued for defamation, there is a risk that the allegation cannot be substantiated at trial (in which case the defence will not be made out).

Qualified Privilege

The defence of common law qualified privilege applies where a person has a legal, moral or social duty to disclose information, and the information is communicated to another person who has a corresponding duty to receive that information. The defence will apply even if a complainant cannot substantiate the truth of an allegation, so long as the complainant did not make the statement with malicious intent.

A similar defence is provided for in the Uniform Defamation Laws enacted in each State and Territory, which impose additional requirements including, among other things, that the complainant acted reasonably in making that disclosure.

In sexual harassment matters, this defence arguably applies to statements made by a complainant to any person within the workplace who has a genuine interest in the resolution or investigation of a complaint (such as a Managers, counsellors, HR or disciplinary bodies). However, it might be difficult to apply the defence to any statements made by a complainant to the broader public (e.g. through the media) given the practical difficulties of establishing that all members of the broader public have an interest in receiving information about an incident that occurred in private between two people.

Positive developments – Stage 1 Defamation Reforms

The Model Defamation Amendment Provisions 2020 (Stage 1 Defamation Reforms) that came into effect in July 2021 (in Victoria, New South Wales, South Australia, Queensland, Tasmania and the Australian Capital Territory) introduced some changes that could provide complainants and employers with better protection from the defamation risk in the event that a confidentiality clause is not insisted upon as part of a sexual harassment dispute or settlement.

Serious Harm Test

The first change was in the introduction of a new “serious harm” test, which provides that a publication will not be considered defamatory unless it has caused, or is likely to cause, serious harm to the reputation of the plaintiff (i.e. the alleged harasser).

The effect of this new test is that the onus will now be on the alleged harasser to prove serious harm in order to bring a successful action for defamation.

“Serious harm” is not defined, but was recently given judicial consideration in Newman v Whittington [2022] NSWSC 249 where the New South Wales Supreme Court endorsed the formulation of the serious harm threshold prescribed by  the United Kingdom Supreme Court in Lachaux v Independent Print Ltd and another [2019] UKSC 27 (Lachaux). In Lachaux, it was held that “serious harm” is to be determined by reference to the actual facts about its impact, not merely the meaning of the words, and that the plaintiff must prove that the harm caused by the defamatory publication was, or will, be serious.

Arguably, all allegations of sexual harassment have the capacity to cause “serious harm” to a person’s reputation. However, if an alleged harasser wants to bring an action for defamation against a complainant, he or she will need to adduce evidence of the actual impact on his or her reputation (e.g. lost job prospects, exclusions for social settings etc.).

Accordingly, this might help to prevent an alleged harasser from initiating, or  threatening to commence defamation proceedings for the purpose of silencing complainants.

New Public Interest Defence

The Stage 1 Reforms also introduced a new defence for the publication of matters ‘of public interest’. This defence is designed to address the fact that defendants are rarely successful in defending public interest publications using the existing defence of qualified privilege.

Whilst this defence will be useful to media defendants, it can also be used by any person communicating on public interest matters (such as sexual harassment complainants), so long as they can prove they had a reasonable belief that the publication was in the public interest in the circumstances.

It is, therefore, arguable that the disclosure of sexual harassment matters to the wider public serves a public interest in that these disclosures are designed to shed light on the  important issues of gender equality and violence against women at work.  Accordingly, the defence may assist complaints who wish to publicise their experiences to a broader audience for the purpose of achieving these objectives.

However, it is important to appreciate that the potential availability of these defences does not prevent a defamation claim from being threatened or made by an alleged harasser in the event a sexual harassment complainant wishes to speak publicly about their experience.

The risk of a defamation law suit against an individual complainant or employer remains, particularly in circumstances  workplace sexual harassment can manifest in various forms of conduct that can be difficult to investigate or substantiate.

Stage 2 Defamation Review

In March 2021, a Discussion Paper was released by the Attorneys-General as part of Stage 2 of the Review of Model Defamation Provisions (Stage 2 Defamation Review). Part B of the Stage 2 Defamation Review considers, among other things, whether the defence of “absolute privilege” should be extended to people who make complaints of unlawful conduct, such as sexual harassment, to employers and professional disciplinary bodies.

The defence of “absolute privilege” is a complete immunity which applies irrespective of a person’s motive or reasonableness in disclosing sexual harassment matters. In August 2022, Part B exposure draft amendments to the Model Defamation Provisions were released for public consultation. However, those amendments have not been finalised and so an extension of the defence of absolute privilege has not been confirmed. However, if that does ultimately occur,  it has the potential to provide employers and complainants with a further safeguard against the risk of defamation.

Recommendations – a cautious approach to limiting the use of NDAs

While progress is imminent in the context of defamation law reform in Australia, the current state of the law poses extant legal risks for employers and complainants.  We set out below a series of recommendations that may help to mitigate against that risk of a defamation claim being brought by an alleged harasser in sexual harassment complaints:

1. employers should take a case by case approach to confidentiality clauses or agreements (and not a blanket policy approach) in consultation with the complainant and with regard to the nature and circumstances of the sexual harassment complaint;
2. employers should consider whether an independent investigation is likely to be able to substantiate the allegations of sexual harassment. Where possible and practicable, and with due regard to the wellbeing of the complainant, it may be appropriate for an independent investigation to be undertaken to substantiate The findings of an independent investigation may mitigate the risk of a defamation claim if allegations can be substantiated.
3. in circumstances where an employer and/or complainant would prefer to reach an early settlement of a complaint, an employer should weigh the risk of a defamation claim with its interests and the interests of the complainant in the circumstances. It may be in the employer’s interests to insist upon the inclusion of an appropriately protective confidentiality agreement. Similarly, it may be a complainant’s preference to preserve confidentiality of the complaint and settlement.
4. employers should ensure that all parties understand the risks of defamation where a confidentiality undertaking (or NDA) is not part of a settlement negotiation. Where a complainant is permitted to speak publicly about all or part of the complaint or terms of settlement, all parties should be fully informed about the risks of defamation (and other relevant legal issues that may arise, such as the waiver of legal privilege); and
5. employers may wish to make a public comment regarding their position on workplace sexual harassment in response to an alleged incident. We recommend that employers who wish to speak publicly about the issue of sexual harassment, or about a particular allegation or case at hand, seek legal advice – particularly in light of the introduction of the new public interest defence to defamation and the risks that can arise by way of the operation of a claim of “true innuendo”.

The Respect@Work Report highlights the significant barriers that complainants face in reporting workplace sexual harassment.⁹ Fear of reprisal and professional, health and emotional impacts are some of the reported factors that prevent complainants from coming forward to their employers in the first place.¹⁰

The trend towards the abandonment of NDAs by employers (or the dilution of confidentiality clauses in sexual harassment disputes)  has the potential to cause unintended harm to complainants and employers as a result of the risks associated with defamation in Australia.

Considering the tensions between the rights of complainants of workplace sexual harassment and an alleged harasser’s rights to privacy and reputation, employers will need to make careful and deliberate decisions on a case by case basis about their risk appetite in resolving sexual harassment matters, balancing the needs and interests of a complainant against the risks of defamation and the values and priorities of the organization in the particular circumstances.

This article was written by Ali Gronow, Senior Associate and Caitlin Surman, Senior Associate and reviewed by Peter Campbell, Partner and Chris Egan, Partner.

¹The Australian Human Rights Commission, Respect@Work: National Inquiry into Sexual Harassment in Australian Workplaces, 2020 (Respect@Work Report).
²Ibid 10.
³Ibid.
⁴There can be important legal differences between an NDA and a confidentiality agreement or undertaking in a settlement agreement. However, for simplicity, this article, uses the term “NDA” as an umbrella term to capture both concepts.
⁵Ibid 32.
⁶Ibid.
⁷Respect@Work Council, Recommendations directed to the Respect@Work Council, 10 November 2021, accessed at: https://www.ag.gov.au/sites/default/files/2021-12/update-on-the-status-of-recommendations-directed-to-the-respect%40work-council.pdf.
⁸There are also other risks that employers should consider beyond the scope of this article, like the waiver of legal privilege.
⁹The Report found that around 39% of women (almost 2 in 5) and 29% of men (2 in 4) experience workplace sexual harassment yet only 17% make a formal complaint (fewer than 1 in 5 people).
¹⁰Respect@Work Report, 262.