The SRA warning notice was a significant step forward in acknowledging the harm that solicitors can do when they misuse their power and status.* But much has changed since early 2018: knowledge on problematic practices is becoming clearer, as are the roadblocks to progress. The Women’s & Equalities Select Committee reported on the need to clean up the use on NDAs in July 2018. It followed this with its June 2019 report specifically on the use of NDAs in discrimination cases.
We have also seen reports on the use of NDAs in teaching, gambling, universities, health and product liability cases. There are lots of other examples we could refer to. The Cabinet Office has recognised these issues in creating new guidance for public sector organisations using NDAs. The restrictions go much further than the law and suggest where public policy is heading. Every lawyer using NDAs should read this document.
Public opinion may also be shifting, something that regulators need to listen and respond to when setting and enforcing standards. The SRA recognises this. Its work on understanding public expectations was ground-breaking and reflected in the SRA’s enforcement strategy. It should be read alongside the warning notice on NDAs because it provides the framework for how seriously the SRA will take any breach of the warning notice.
And the Government promised in July, “to work with relevant stakeholders including the Solicitors Regulation Authority (SRA), the Equality and Human Rights Commission (EHRC) and the Advisory, Conciliation and Arbitration Service (ACAS) to produce suitable guidance for solicitors” (Response to the Government consultation on Confidentiality Clauses and legal professionals responsible for drafting settlement agreements).
Having shown some real initiative in this area the time is ripe for the SRA to lead this work. It should revisit its warning notice in the light of all of the above, and its own experience of these cases. The SRA knows this and committed to it in its discussions with the Women and Equalities Select Committee on NDAs.
Here are some issues that we think should be considered for inclusion.
– The SRA needs to highlight that the misuse of NDAs extends beyond employment disputes. They should highlight to the profession the examples they have seen in other contexts, such as settling health or injury claims, gambling disputes or other issues related to being a regulated firm in any sector, product liability issues and other commercial or similar relationships.
– Solicitors need to be reminded that their client (regardless of being in-house or an external adviser) is the organisation not the CEO, GC or other senior managers. We know that there is a risk that CEO’s use NDAs to settle employment disputes that would embarrass them if they went to tribunal. A pattern of allegations of harassment or bullying by a senior executive should be visible to the Board and NDAs should not be used by a CEO to prevent that. The solicitor must act in the best interests of the client – and sometimes that is not the same as the best interests of the senior executives. This raises the vital issue of when and how to ‘report up’ when instructed by, or working within, organisations. Obligations here need clarifying and emphasising.
– General Counsel or external advisers should be clear that if advising an organisation that has regulatory obligations (to SRA or other statutory regulators) they remind the client that the fact an NDA has been appropriately used to manage claims and protect the reputation of a business does not absolve them of any regulatory obligations to report anything to their regulators. The lawyer will need to advise the client that they will need to consider this separately and may need specific legal advice on this.
– The warning notice should highlight the risks that the use of an NDA to limit disclosure, or otherwise influence legal process, may be a criminal offence and that the solicitor must advise the client of these risks. The solicitor cannot be complicit in perverting the course of justice. The SRA may also want to work with the Crown Prosecution Service to give a clear message to solicitors about the extent of these risks. It includes inhibiting external investigations and improperly influencing civil and regulatory processes.
– The chilling effect of NDAs has become increasingly clear and well recognised. The NDA does not need to have a clause preventing appropriate or lawful reporting in order to be effective in stopping individuals from reporting. Solicitors need to be reminded that NDAs should not be based on clever drafting: if the other party is likely to be left thinking they might not be able to report something or is likely to be inhibited in what they can report then it is is unacceptable. SRA need to be specific and explicit here and require drafting that the other party can understand.
– Clawbacks are an issue about which many employment lawyers have told us they are concerned. We have seen clauses that permit the automatic recovery of very large sums of money for any alleged breach of the agreement however minor. And have heard from counterparties about the psychological effect that such clauses, arguably penalty clauses, have on weaker parties. Some think these clauses need to be banned. At the very least, the SRA should highlight these risks and remind solicitors that recovery clauses need to be proportionate and fair. Solicitors should not seek to take advantage of third parties regardless of their being represented or not. They need reminding that these clauses typically bite after the agreement is signed, when the counterparty is likely to be unrepresented. And penal clauses must not be used to deter appropriate reporting. Clauses that are unlikely to be enforced have no place in an NDA. It is not enough for a solicitor to say a court may enforce it; the SRA’s guidance on this point is too generous on this currently.
– Solicitors should be reminded that they must not draft NDAs to obfuscate or confuse. Some lawyers tell us this is a deliberate practice of some when drafting clauses setting out whistleblowing rights. Solicitors cannot simply rely on the fact that the other side is represented: this is not a battle between lawyers but solicitors acting in a manner consistent with the proper administration of justice. And again, they need to remember that counterparties will not typically be represented if and when they need to understand the agreements months down the track.
– The SRA should remind solicitors that advise the counter party to NDAs that they must properly advise whatever fee is taken. There is work to be done here to raise standards. Solicitors advising on NDAs need to be required to look closely at clauses; negotiate their proportionality; and, advise document and challenge problematic clauses; and, be clear about enforceability and whistleblowing rights. Best practice would suggest that this advice should be in writing so that client can take it away from stressful situation and read their own lawyer’s advice as well as the NDA at a later date.
I sometimes hear lawyers say that they do not know what the Rule of Law really means. Or that they cannot be penalised for doing things that are lawful. What they often mean is that they cannot be criticised for inappropriately exploiting uncertainty to the advantage of overly powerful clients. We need to be clear here. The SRA’s task is not simply to make sure that solicitors do not breach the law. This is why the’ taking unfair advantage’ element of professional rules is so important. The SRA sets standards for solicitors and law firms in return for them having access to a restricted market. There is a crucial interest in NDAs being deployed in ways which do not stifle the public interest in learning about and tackling misconduct. Any solicitor that thinks it is only the law that restricts their advice on NDAs is heading for trouble and the SRA warning notice needs to make this clear.
Crispin Passmore and Richard Moorhead
A short version of this blog first appeared in The Times Brief on 2 September 2019
* Crispin Passmore was an Executive Director at the SRA from January 2014 through to December 2018. He commissioned the warning notice and was involved in its sign off having been influenced by Richard Moorhead’s blog. He oversaw the Question of Trust work too, but got the germ of the idea from work the General Medical Council had done.
Richard Moorhead is Professor and Chair of Law & Professional Ethics at the Faculty of Laws, UCL and is incoming University of Exeter Head of Law.
One thought on “Time for SRA to update warning notice on NDAs”
Who should General Counsel report his concerns to? Needs to be statute imposed duty or could lead to the GC being fired on one pretext or another. Perhaps report in to the audit committee?