SRA Publishes Thematic Review into How Law Firms Prepare Non-Disclosure Agreements

On 14th August 2023, the SRA published a report into the preparation of Non-Disclosure Agreements (NDAs) by law firms between employers and employees.

The report entitled “Thematic Review: The use of Non-Disclosure Agreements in workplace complaints” covered the role of law firms in the drafting and agreeing of staff NDAs.

Why Did The SRA Look Into NDAs?

The report was prepared by the SRA in response to “significant public concern” regarding the use of NDAs between employers and employees, specifically where there has been a complaint raised by either party about inappropriate behaviour. As the report acknowledges, the use of NDAs was placed into the spotlight during the high-profile investigations relating to allegations of sexual harassment in the workplace. It was also triggered in light of the “#MeToo” movement, which revealed the inappropriate use of NDAs by those in positions of power to prevent unacceptable conduct such as sexual harassment being reported, as in the case of Harvey Weinstein and his former employee, Zelda Perkins. As the report states, “This, in turn, raised concerns about the role of solicitors and law firms involved in the drafting of such agreements”. The report followed the issuing of a warning notice in 2018 (later updated in 2020) regarding the use of NDAs which led to an increase in reports of improper use of NDA clauses in settlement agreements.

What Was The Aim Of The SRA’s Report On NDAs?

The SRA’s report aimed to find out:

  1. How NDAs are used in an employment context
  2. Any measures solicitors have taken to make sure they do not stray into inappropriate areas
  3. How firms use NDAs when responding to issues raised by employees
  4. How firms use NDAs when advising and representing clients
  5. Whether or not NDAs are being used to conceal serious allegations and prevent employees from speaking up

To achieve these aims, the SRA looked at a) the measures adopted by law firms to comply with their warning notice and their effectiveness, b) whether the drafting and handling of agreements complied with their warning notice, c) the level of awareness and compliance with regulatory and reporting obligations and d) the use of NDAs following complaints about unacceptable behaviour in the workplace. Their survey involved 150 firms providing employment services.

When Should NDAs Not Be Used?

The warning notice published by the SRA advises that NDAs may be used inappropriately if they are used to “prevent, impede or deter” a person from:

  • Co-operating with a criminal investigation or prosecution
  • Reporting an offence to a law enforcement agency
  • Reporting misconduct, or a serious breach of our regulatory requirements to us, or making an equivalent report to any other body responsible for supervising or regulating the matters in question
  • Making a protected disclosure under the Public Interest Disclosure Act 1998.
  • Influencing the substance of such a report, disclosure, or co-operation
  • Preventing any disclosure required by law, or
  • Preventing proper disclosure about the agreement or circumstances surrounding it to professional advisers

What Did The SRA’s Latest Report On NDAs Find?

On a highly positive note, the report found that in most cases, NDAs prepared by law firms align with the guidance in the SRA’s warning notice. 64% of fee-earners involved in the study knew of the warning notice, but knowledge of the specific issues it covers was “fairly low”. In addition, there was little evidence of ongoing NDA-specific training. The SRA did not find any specific examples of law firms writing NDAs to be used for the specific intention of preventing the reporting of inappropriate behaviour. However, the report highlights findings that may inadvertently contribute to such occurrences. The SRA found that:

  • There is often a “fundamental imbalance of power” in the drafting of NDAs whereby employers will generally dictate the terms of any agreement “sometimes before or without an employee engaging legal advice of their own”, and
  • Firms typically use standard NDA templates, which often fail to take into account the individual circumstances of each case.

The SRA found examples of NDAs which omitted permitted disclosures from draft and final documents and included restrictive non-derogatory clauses and inappropriate clawback/penalty clauses.

As the report stated, “Our evidence suggests that the risks posed by NDAs are routinely underestimated and rarely explored. Firms (and clients) instead focus far more on the nature and extent of any possible financial settlement, rather than the specific clauses within any agreement”.

The report also found examples of employers setting short timescales for employees to sign NDAs and even creating a sense of urgency. This has the effect of preventing employees from seeking legal advice before signing the NDA.

As the report concludes, there is a danger of risk and complacency because firms often treat NDAs as low-risk and fairly straightforward work. They recommend that:

  • Firms consider and review their use of templates regularly, including by considering them against the issues highlighted in the SRA warning notice, and
  • Fee-earners are reminded that there is no such thing as a ‘standard case’ and must remember the need to proactively consider whether an NDA is appropriate.

If it is, it may require tailoring to the specific facts of the case or the individual involved.

Final Words

Overall, the report provides a useful and timely reminder of the ethical obligations of law firms when drafting NDAs, including within their own organisations.

Failure to adhere to these obligations may be a breach of the SRA’s Principles, Code and warning notices. This is especially important given that employees entering into an NDA with their employers often have very limited influence and knowledge.

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