On 6 August 2024, the SRA updated its warning notice on the use of non-disclosure agreements (“the Warning Notice”). In this news alert, Associate Liz Pearson and Partner Andrew Pavlovic summarise and discuss the key changes and set out the steps that firms should be taking to spread awareness of the Warning Notice.
Background
The SRA first published its Warning Notice on non-disclosure agreements (“NDAs”) in March 2018, following concerns arising from the #MeToo movement that settlement agreements containing NDAs (typically confidentiality clauses) were being used to prevent the reporting of misconduct to the relevant criminal/regulatory authorities.
The Warning Notice was significantly revised in November 2020, to make clear that inserting other types of clauses which discouraged the reporting of incidents (such as warranties/indemnities and clawback clauses) could also amount to a breach of the SRA Principles/Code of Conduct (a link to a news alert on the 2020 updates is here).
In August 2023 the SRA published its Thematic Review on NDAs (“the Thematic Review”, discussed here). Having collected data/information from surveys and on-site visits of law firms, the SRA found no direct evidence of solicitors drafting NDAs with the deliberate intention of preventing reporting of inappropriate behaviour. However, the SRA did find a number of common trends or practices which, if not addressed, could result in this happening inadvertently. The SRA also found a general lack of awareness of the circumstances in which an opponent’s conduct might need to be reported to the SRA.
Many of the findings of the Thematic Review are reflected in the revisions to the Warning Notice, set out below.
The SRA Principles/Rules
Before addressing the changes to the Warning Notice, it is worth briefly recapping the relevant SRA Principles/Rules which could be infringed by a solicitor who drafted an NDA in a way which sought to prevent or discourage reporting to regulators and law enforcement agencies, or to prevent disclosures which are protected by law.
- Principle 1: you act in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.
- Principle 2: you act in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.
- Principle 3: you act with independence.
- Principle 5: you act with integrity.
We note that Principle 7 requires that solicitors/firms to act in the best interests of each client. Whilst it is arguable whether seeking to prevent the reporting of misconduct could ever be in a client’s bests interests, the preamble to the SRA Principles makes clear that, where the Principles come into conflict, “those which safeguard the wider public interest (such as the rule of law, and public confidence in a trustworthy solicitors’ profession and a safe and effective market for regulated legal services) take precedence over an individual client’s interests”. This is reflected in the Warning Notice, which states that, if instructed by a client to act in a way that is inconsistent with these Principles, the solicitor will need to consider whether they can continue to act for that client.
Alongside the SRA Principles, there are specific Rules which may be engaged by the inappropriate drafting of NDAs, such as the rule providing that solicitors must not abuse their position by taking unfair advantage of clients or others (Rule 1.2 of the Solicitors Code of Conduct) and the rule providing that solicitors must not attempt to prevent anyone from providing information to the SRA or any other body exercising regulatory, supervisory, investigatory or prosecutory functions in the public interest (Rule 7.5 of the Solicitors Code of Conduct), among others.
The Change
The SRA has included a new section on ‘improving how you deal with NDAs’, incorporating many of the findings of the Thematic Review.:
- Considering whether an NDA is needed – Whilst the SRA recognises that NDAs can often be legitimately used to protect commercial interests, reputation, and confidentiality, they ‘should not be used routinely’. The ACAS guidance on settlement agreements highlights that careful consideration should be given to the need for NDAs and that consideration should be given on a case by case basis as to whether an NDA clause/clauses are needed. This reflects a finding of the Thematic Review that solicitors/firms were using template settlement agreements containing NDAs without thought as to whether those clauses were in fact required.
- Time limits – Another finding of the Thematic Review was that employees were often given short deadlines to sign up to agreements containing NDAs, impacting on the solicitor’s ability to advise on the terms and the client to consider that advice. The Warning Notice states that solicitors should challenge unreasonable time limits proposed by the opponent, to ensure the solicitor has sufficient time to take instructions, advise and respond.
- Funding – Employers will often provide only a limited contribution to the client’s costs of obtaining advice on a settlement agreement (sometimes as little as £500 + VAT). Working within these constraints whilst also acting in the client’s best interests can be challenging. The Warning Notice states that solicitors must be clear with clients from the outset about the potential limitations of the advice they can offer because of any funding constraints.
- Advice and records – Notwithstanding the challenges with time limits and funding identified in the Warning Notice, the SRA states that, whatever the level of funding, solicitors should provide clear advice on what the NDA permits and prohibits, and keep a record of that advice. They also suggest that confirming advice in writing might assist the client’s understanding of the clause/s, as well as assisting the solicitor if a concern is later raised about their role in advising on the NDA.
- Training – The Warning Notice puts the emphasis on firms to ensure that all those dealing with NDAs have adequate support and training on the issues covered within the Warning Notice. In this regard, whilst the Thematic Review found that 64% of fee-earners the SRA spoke to were aware of the Warning Notice, knowledge on the issues it covered was fairly low, and there was little evidence of ongoing NDA-specific training within the firms visited.
- Reporting – The Thematic Review identified a lack of awareness/understanding of the self reporting regime and how this interacted with the negotiation of NDAs. The Warning Notice states that, in the first instance, concerns about unethical or unenforceable clauses in NDAs should be raised (and hopefully resolved) with the other side. However, the Warning Notice also states that firms and solicitors should, in accordance with their regulatory obligations, report serious concerns to the SRA so they can be investigated. This is an area where further guidance from the SRA would be welcome. If, for example, in a case involving an allegation of sexual misconduct, a solicitor produced a settlement agreement containing clauses which prevented the reporting of that misconduct to the regulatory/law enforcement agencies, would the production of that draft in itself be serious enough to trigger the self reporting requirement, even if the solicitor agreed to remove the offending clause during the course of the negotiations?
What Should Firms Do Now?
- In the first instance, Firms should distribute the Warning Notice to all staff dealing with NDAs so they are aware of it.
- This should then be followed up with training, taking into account the firm’s particular context and interactions with NDAs, which should also remind individuals of their professional obligations.
- Templates/checklists should be updated to align with the Warning Notice. For example, drafting notes could include “Step 1 – consider the purpose of the NDA in the specific circumstances and whether the NDA is truly required”. Checklists may assist in reminding individuals to push back on unreasonable timescales.
- Firms should reflect on the systems they have for recording the advice they give and whether this meets the SRA’s requirements.
- Firms should also consider their own position and the circumstances in which NDAs are used in relation to their own staff, typically where allegations of inappropriate behaviour have been made.
- The SRA has also stated it will publish further guidance and educational resources for the profession and public. These can be built into training once available.
If you have any questions arising from this video, or you would like to discuss any issues regarding NDAs or SRA investigations and regulation, please contact our Partner Andrew Pavlovic, who specialises in regulatory and professional discipline law, or Associate Liz Pearson who specialises in partnership and employment law.
CheckYourNDA – Free Online Tool
Try our free, interactive tool, CheckYourNDA, to help you check the terms of any non-disclosure or confidentiality agreement to ensure they are appropriate, enforceable and in line with best practice.
The tool provides you with a traffic-light report, giving you feedback on areas of potential concern on your NDA provisions, with explanations and suggestions for improvement. You can access the tool here.
