Coming on the back of the President’s Club scandal and other high profile complaints, on 12 March 2018, the Solicitors Regulation Authority (SRA) issued a warning notice to advisers about the inappropriate use of gagging clauses or more appropriately non-disclosure agreements (NDAs). Whilst the SRA recognises that NDAs do have a legitimate purpose namely to protect commercial interests, confidentiality and reputation, it is concerned that NDAs are not being used to restrict the reporting of misconduct to the SRA, other regulators or other law enforcement agencies. While the warning notice does not form part of the SRA handbook, the SRA has indicated that it has regard to such notices when considering its regulatory functions.
The SRA’s guidance states that NDAs would be improperly used as a means of preventing, or seeking to impede or deter, a person from:
- reporting misconduct, or a serious breach of our regulatory requirements to [the SRA] or other regulator
- making a protected disclosure under the Public Interest Disclosure Act 1998
- reporting an offence to a law enforcement agency
- cooperating with a criminal investigation or prosecution
In addition, NDAs should not be used to:
- influence the substance of such a report, disclosure or cooperation
- improperly threaten litigation against, or otherwise seeking improperly to influence, an individual in order to prevent or deter or influence a proper disclosure
- prevent someone who has entered into an NDA from keeping or receiving a copy
The SRA has stated that NDAs or other settlement terms must not stipulate, and the person expected to agree the NDA must not be given the impression, that reporting or disclosure as set out above is prohibited. It may be appropriate for the NDA itself to be clear about what disclosures are not prohibited by the NDA.
All solicitors should have regard to specific outcomes under the SRA Code of Conduct 2011 when considering NDAs and advising on the same.
Whilst employment lawyers are aware of the provisions of the Employment Rights Act 1996 (section 43j) which provides that any provision in an agreement between employer and worker (including in a settlement agreement) is void in so far as it purports to preclude the worker from making a protected disclosure, the guidance issued by the SRA goes beyond this.
In the light of this guidance from the SRA, care needs to be taken by all lawyers, including those working as in house lawyers, when drafting NDAs which involves allegations such as discrimination, fraud, bribery, or other ‘proper’ whistleblowing allegations (e.g. breach of environmental regulations).
Further information on this issue can be found on the SRA’s website.