Using NDAs appropriately

Googling NDAs makes for interesting reading. Almost half of the top entries about non-disclosure agreements (NDAs) are negative stories. Common themes include mistreatment at work, sexual harassment and cover-ups.

Would you have got a similar result a few years ago? Probably not. Although not a new issue, recent high profile cases and the success of #metoo and #timesup has seen the spotlight focused on the use (and misuse) of NDAs, particularly in settling allegations of sexual misconduct.

The problem has attracted political scrutiny. Last month the results of an inquiry by the House of Commons Women and Equalities Select Committee were published. Analysing the use of NDAs in discrimination and harassment cases in the workplace, the committee expressed concern about the detrimental effect NDAs can have on the lives of ordinary people. It concluded that “this cover-up culture has to be challenged”.

But although much of the media attention has focused on the use of NDAs in cases of sexual harassment, their use is not confined to those cases. Confidentiality clauses are a common feature in agreements settling commercial and other types of litigation. The concerns which have been expressed about NDAs in cases of sexual misconduct also apply to their use in those agreements.

Our expectations

At the Solicitors Regulation Authority (SRA), we recognise that NDAs and confidentiality clauses are widely used legitimately. But it appears that they are frequently used as a matter of routine in agreements settling all types of claims and, too often, standard clauses which are inappropriate are used where there is no justification.

Of course, if a clause is improper, it should not be used under any circumstances. But we are particularly concerned that, in cases reported to us, solicitors appear to have insisted on those clauses when they know that their opponents are unrepresented or vulnerable.

Our expectations are well established in this area. So, although we are receiving more complaints about the inappropriate use of NDAs, undoubtedly linked to the increased public profile of this issue, our rules have not changed. The SRA Principles 2011 set out the key ethical requirements of firms we regulate, and the individuals working in those firms. They are required to:

  • Uphold the rule of law and the administration of justice (principle 1).
  • Act with integrity (principle 2).
  • Behave in a way that maintains the trust the public places in you and in the provision of legal services (principle 6).

Our rules also say that those we regulate must not take unfair advantage of third parties or attempt to prevent anyone from providing information to the SRA, the Legal Ombudsman or law enforcement agencies.

In March 2018, we published a warning notice on the use of NDAs, setting out how our principles are engaged when drafting such agreements. Its contents also apply to confidentiality clauses in agreements settling all types of litigation. We are clear that those clauses should not be used either:

  • In circumstances where a party may then feel unable to notify the SRA, other regulators, or law enforcement agencies of conduct which might otherwise be reportable.
  • Improperly to threaten litigation or other adverse consequences, or otherwise exert inappropriate influence over people not to make disclosures which are protected by statute or are reportable.

Examples of inappropriate clauses

In investigating the improper use of confidentiality clauses, we have seen a range of provisions which cause concern. They include clauses which:

  • Permit disclosures only where they are “required” by law (rather than where a party chooses to make a disclosure to an appropriate law enforcement or regulatory body).
  • Seek to impose restrictions on a party’s ability to participate in criminal or other proceedings, or deter them from taking part in those proceedings.

Importantly, we will consider not just the legal meaning of the clause, but also its effect on anyone bound by it. So, the clause must not stipulate, and the person expected to agree the NDA must not be given the impression, that such reporting or disclosure is prohibited.

In last year’s case of Solicitors Regulation Authority v Alexis Maitland Hudson, the Solicitors Disciplinary Tribunal considered a confidentiality clause settling a commercial claim. It held that:

“The question for the Tribunal was not whether the clause was enforceable but whether it was an attempt to hinder or prevent Mr Cosser from making a complaint [to the SRA], particularly if in doing so he would have believed that he was exposing himself to significant financial liability for breaching the terms of the agreement.”

It may be appropriate for the agreement itself to identify specifically what disclosures are not prohibited by the confidentiality clause. In our response to the recent Department for Business Energy and Industrial Strategy consultation on confidentiality clauses, we highlighted that various stakeholders have suggested that agreements should set out in a prominent position, in clear and plain language, the disclosures that the confidentiality clauses cannot prohibit.

NDAs and confidentiality clauses remain common features in settling litigation; we have seen evidence of them being used in commercial, personal injury and professional negligence litigation. Yet solicitors must use them in a way which fulfils their professional obligations. While our warning notice does not create new rules, practitioners tell us that it has been useful to have guidance on their professional obligations when acting in those matters.

We will continue to update that guidance and engage with regulated individuals and firms, and other regulators, to develop best practice.

Trust in solicitors and law firms rests upon the profession upholding the rule of law and acting with integrity. I hope that if I am googling NDAs in a few years’ time, the negative headlines have disappeared.

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