Thematic Review on the use of Non-Disclosure Agreements in workplace complaints - SRA reports further room for improvement

The Solicitors Regulation Authority (SRA) published the results of its thematic review into the use of non-disclosure agreements (NDAs) in workplace complaints on 14 August 2023. NDAs are commonly used when settling employment disputes, usually within a settlement agreement or COT3 agreement. The SRA’s relevant report reflects on the role of solicitors in drafting and advising on NDAs and provides the profession with some key learning points, and reminders, to ensure regulatory compliance.

The SRA Warning Notice

The profession’s use of NDAs has been in the spotlight for many years now. Investigations into high profile allegations of sexual harassment in the workplace highlighted the issue, and particularly shone a light on: 1) the imbalance of power that often exists between employers and employees in these negotiations; and 2) solicitors’ roles in such negotiations. This prompted the SRA to issue a warning notice to the profession in 2018, later updated in November 2020. While recognising the legitimate uses NDAs can have, the SRA highlighted its expectations of those individuals it regulates who advise on and negotiate NDAs.

Thematic Review

The SRA’s thematic review involved surveying 150 law firms which provide employment services. The SRA then conducted in depth interviews, on-site visits and file reviews across a representative sample of 25 of those firms most active in this area. The SRA wanted to understand how NDAs are used in an employment context and the steps solicitors have taken when advising both employers and employees and, ultimately, whether NDAs are being used to conceal serious allegations and prevent employees from raising concerns.

In reporting on its findings, the SRA reiterates at the outset the legitimate use of NDAs in the vast majority of cases for “protecting the interests of a business or individual.” It states that, when used properly, they “can operate to the mutual benefit of both parties.” Whilst the SRA found no direct evidence of solicitors drafting NDAs with the “deliberate intention of preventing reporting of inappropriate behaviour”, the SRA did find a number of common trends or practices which might inadvertently contribute to this happening.

The SRA noted that its “evidence suggests that the risks posed by NDAs are routinely underestimated and rarely explored”, with the focus instead being the terms of any possible financial settlement rather than the specific clauses in the agreement itself. It was found NDAs are generally viewed by firms as low risk and a fairly straightforward activity. This can lead to some complacency about the scope and relevance of NDAs and the need to tailor templates. While confidentiality clauses may seem standard, often the individual circumstances are not. There is also often a lot of pressure to resolve these types of matters quickly, for all concerned, with the increased regulatory risks to which this gives rise.

Learning Points

Reporting

The SRA found that less than 10% of the firms surveyed reported having raised concerns with another firm about an unethical or unenforceable clause in an agreement with an NDA, and only 28% thought the SRA’s reporting obligations were relevant regulatory knowledge for fee-earners dealing with NDAs.

The reporting obligations under the Code of Conduct for Solicitors, RELs and RFLs and Code of Conduct for Firms each contain a requirement to report promptly to the SRA any facts or matters that you reasonably believe are capable of amounting to a serious breach of the SRA’s regulatory arrangements by any person regulated by the SRA (including yourself). There is also the wider reporting obligation to inform the SRA promptly of any facts or matters that you reasonably believe should be brought to its attention in order that it may investigate whether a serious breach of its regulatory arrangements has occurred or otherwise exercise its regulatory powers.

The thematic review sees the SRA reiterating the importance of reporting concerns for maintaining public trust in the profession and ensuring any serious concerns can be investigated.

Key lessons arising from the review include:

1. While raising any offending clauses of an NDA with lawyers for the other side may result in the issue being quickly resolved, whether or not the matter also needs to be reported to the SRA should also be considered. The decision reached in terms of reporting, and the factors influencing that decision, need to be clearly documented (note 7.2 of the Code of Conduct for Solicitors: “You are able to justify your decisions and actions in order to demonstrate compliance with your obligations under the SRA’s regulatory arrangements”);
2. For concerns arising prior to the publication of the SRA’s corresponding Warning Notice (12 March 2018), the SRA’s expectation is that it is a requirement to report the matter as soon as possible on becoming aware that the issue should have been reported.

 

Inadequate tailoring of templates

The SRA references Acas guidance as to good practice that, “confidentiality clauses should only be used when necessary” and not “as a matter of course” when drafting agreements. Further key lessons arising from the SRA’s review in this respect include:

1. Reviewing the use of templates regularly, including by considering them against the issues highlighted in the SRA Warning Notice;
2. Fee-earners to be reminded that there is no such thing as a ‘standard case’ for the individual involved – solicitors must remain aware of the need to “proactively consider whether an NDA is appropriate, and if so, how this may need tailoring to the specific facts of the case or individual involved.”

 

Time pressures

Notwithstanding any pressure to resolve matters quickly, solicitors on both sides have a responsibility to make sure the process is fair for all parties involved. Solicitors must not lose sight of their regulatory obligation not to take unfair advantage (1.2 of both Codes of Conduct).

Law firms on both sides of an agreement are advised to:

1. Take active steps to support clients and help them make informed decisions;
2. Be aware that the circumstances behind many NDAs can often mean clients and third parties involved are vulnerable, and this means they need to consider their own approaches to working with and supporting people in such circumstances;
3. Consider the training offered to fee-earners to support vulnerable clients and the use of checklists, risk assessments or a red/amber/green system to highlight risks on specific files.

 

Training and Supervision

Improved training programmes more generally on the Warning Notice, the SRA reporting requirements and wider regulatory obligations is a running message in the SRA’s conclusions so as to uphold the trust the public have in the profession (SRA Principle 2).

An awareness of and the need to keep in mind the SRA principles at all times is generally reiterated; solicitors need to assess whether they can continue to act where their instructions conflict with their regulatory obligations (for example, if a client insists on including a clause that prevents or inhibits a permitted disclosure). The proper administration of justice (Principle 1) and the public trust in the provision of legal services must be considered (Principle 2).

Interestingly, the SRA questioned Firms on whether ethics training/training on ethical decision making was provided by Firms, with only 7 of the 25 firms confirming that they did so. Given the sharpened focus on legal ethics for the profession in recent years, the results are indicative of a significant training need within the regulated community in the context of NDAs and beyond.

The importance of supervision of junior fee-earners working on NDAs is also reinforced. A reminder of the SRA’s guidance on Effective Supervision is recommended follow-on reading for those advising in this field.

 

Limited legal fees

In the files reviewed by the SRA, contributions from employers to cover the legal fees of employees entering settlement agreements typically ranged between £250 and £750 (note: although it is common practice, it is not a legal requirement for an employer to cover these fees, just for the employee to receive the advice). The possible results of fees at the lower end of the scale are the employee wishing to finalise agreements quickly and the resulting advice being limited. The SRA has made clear that notwithstanding the fact some clients may seek a quicker service due to such budget constraints, solicitors “still must do all [they] can to make sure [clients] are taking informed decisions.” The SRA suggests: 

1. Preparing standard written information in advance for clients to read, for example with the client care letter or the firm’s website; and
2. Signposting useful resources such as guidance from Acas or the SRA’s Warning Notice.

Where budgets are limited, solicitors acting for employees need to:

1. Be explicit with clients about the extent of the advice they can provide where the budget is limited; and
2. Be satisfied that they are able to carry out their role to a competent standard in the time provided.

 

Recording of Advice

Linked to the speed at which such matters are dealt with, and, in relevant cases, no doubt limited budgets, the SRA found instances of client files with no record of the advice given.

The SRA repeats the message in its Warning Notice to provide advice in writing, not least to help the solicitor should their role in advising on the NDA be raised as part of a concern at a later date. Again, the need to justify your decision making, as specifically stipulated by the Code for Solicitors, is reinforced; record keeping is key.

 

Next steps

The SRA has said it will now run a proactive awareness campaign to review and reinforce the issues and best practice highlighted in its warning notice on NDAs. It also intends to raise awareness among the profession of the need to challenge, and report, unacceptable NDAs or behaviours.

NDAs represent one example area of the ethical complexities solicitors have to grapple with in everyday practice. Coming up to three years on from its revised Warning Notice, the SRA’s findings, resulting guidance and further actions will greatly assist practitioners as they continue to navigate the right side of the line.

And more is yet to come for NDAs, with the Legal Services Board’s call for evidence on the misuse of NDAs having closed in July 2023 and the report on their conclusions expected later this year. NDAs will still, therefore, be hitting the headlines with the profession needing to keep a watchful eye.

Further information

If you have any questions regarding this blog, please contact Kirsty Churm or our Regulatory team.

 

About the author

Kirsty Churm is a Legal Director in the Employment Department. She advises both employers and senior employees on all aspects of employment law and employee relations issues, including contentious and non-contentious matters.