Product safety: non-disclosure clauses in compensation settlement agreements
Guide for businesses on best practice when using non-disclosure clauses in compensation settlement agreements where product safety is a factor.
Overview
Non-disclosure agreements should not be used in ways that limit the ability of consumers to raise safety concerns. In some cases, for example under the Consumer Protection Act 1987, consumers can claim compensation against the producer of a product if the product has caused damage, death or personal injury. Under certain circumstances, as an alternative to court action, consumers and businesses will mutually agree a compensation settlement agreement. The Government is aware that some businesses choose to include non-disclosure clauses (also known as ‘confidentiality clauses’).
These types of clauses can have the effect of making consumers wary of raising concerns about the safety of products with regulators. If they are included in agreements in cases that may involve a product safety risk, the Office for Product Safety and Standards (OPSS) guidance is that businesses should ensure they are used appropriately and make clear to consumers the limitations of the clause. This will ensure that information relating to the safety of a product can be shared appropriately and consumer safety and confidence are maintained.
Key points
- In some circumstances, settlement agreements may be appropriate and beneficial to both parties.
- Non-disclosure clauses should not be used to attempt to prevent a consumer from speaking to a regulator about a product in relation to a product safety concern.
- We recommend that where they are used by a business in product safety matters, it should be made clear to consumers that they can still report a safety concern or incident to a regulator.
- Where a product is subject to corrective action that requires consumer participation, non-disclosure clauses should not prevent the consumer sharing that they had a product subject to the recall where it is in the public interest and may increase the effectiveness of the corrective action.
Product safety responsibilities
Businesses that manufacture, import – in cases where the manufacturer is not based in the EU (or the UK after the end of the Transition Period) – or distribute consumer products in the UK are responsible for their safety. Products should only be placed on the market if their compliance with product safety regulations can be demonstrated appropriately, including through the conformity assessment process where this is required by the law. If a business discovers that a product it has placed on the market represents a safety risk, it must take action to remedy the issue. OPSS recommends that businesses follow the Code of Practice on consumer product safety related recalls and other corrective actions (PAS 7100) available from BSI. This can help businesses plan in advance to deal with any potential product safety issue that might arise with products they have placed on the market or distributed.
Compensation settlements and non-disclosure clauses
Compensation settlements are a relatively common way to settle claims made by consumers against businesses without the need to go to court. This can be advantageous to all parties. Settlements sometimes include non-disclosure clauses that aim to limit what information the claimant can disclose, and to whom – for example, the financial value of the settlement or its terms, or discussing those terms with the media. Non-disclosure clauses can be a legitimate component of settlement agreements as they create incentives to settle out of court and can operate to the mutual benefit of both parties.
Limits of non-disclosure clauses
Disclosure to regulators
It is important that consumers are free and feel enabled to report and discuss product safety matters with regulators. Non-disclosure clauses should not be used to attempt to prevent an individual from disclosing information regarding wrongdoing to public authorities – for example, speaking to a regulator about failure by a business to comply with legal requirements for products to be safe. While non-disclosure clauses that restrict or imply that the claimant cannot discuss an incident or the circumstances of the settlement with appropriate public authorities would be unenforceable in a court of law, there is a risk that they may inhibit the confidence of the consumer to approach the regulator and therefore they should not be used or proposed.
We recommend that when used in relation to product safety matters, this limitation on the use of non-disclosure clauses is actively made clear to consumers so they are aware that they continue to have a right to share information with the regulator. This will ensure that consumers are aware that they have the freedom to report incidents to the appropriate authorities and can assist businesses by enhancing transparency and reputation. Note that in cases where an incident was as a result of a non-compliance that gives rise to a safety risk, the business would be under an obligation to report the risk and the action taken to the regulator.
Disclosure and corrective action
Where a product is subject to corrective action that requires consumer participation, such as a recall, and where it is in the public interest, non-disclosure clauses should not be used to inhibit the freedom that consumers have to inform others of their experience, to promote the fact that a product was subject to a recall or other form of corrective action programme. Where a recall or other corrective action is taking place to protect consumer safety, it is in the public interest to encourage consumer participation in it. OPSS recommends that where a recall or corrective action is underway, it is made clear to consumers that they may pass on information about a recall to promote participation in it.
Using non-disclosure clauses appropriately where product safety is a factor
If your business or its agents use a non-disclosure clause in a settlement agreement where product safety is a factor, it is best practice to:
- Ensure the wording is in plain English.
- Be clear and specific about what can and cannot be shared and with whom.
- Avoid overly broad phrases, which are likely to be unenforceable. For example, ‘You cannot discuss this with anyone, without exception’.
- Avoid clauses that could give the impression to the consumer that they cannot discuss the case with appropriate public authorities.
- Avoid any verbal or written implication or say that the claimant cannot discuss the case with appropriate public authorities.
- Make the claimant aware that the non-disclosure clause does not prevent them from speaking with appropriate public authorities about the issue.
- Avoid clauses that would prevent consumers from passing on information about a corrective action or recall programme that is likely to be in the public interest.
Further information
Product safety advice for businesses
Product safety – Business Companion