On 12 March 2018 the SRA published its warning notice on the use of non-disclosure agreements (NDAs). This was in the wake of the widespread publicity at the time given to NDAs which had been considered too draconian in reach and effect.
In May 2019, one year after publication of the first SRA Warning Notice, Kingsley Napley hosted a roundtable discussion on NDAs. Present were senior professionals, most of whom specialised in law firm risk management or employment law and/or who held specific expertise in legal ethics. The common thread running through the discussion was that there remained a substantial and troubling lack of clarity as to what was and what was not permitted in the drafting of NDAs.
In November 2020, the SRA fully updated its relevant warning notice. In doing so, it has provided much needed clarity for lawyers advising in this area.
Some found the first SRA warning notice to be counter-intuitive in its terms. When acting for employer clients for example, employment solicitors were well used to putting the interests of their clients front and centre of any negotiation and in subsequent terms agreed. In the wake of the #MeToo movement and the subsequent move by the SRA to seek to codify the permissible parameters of such agreements, that client-centric approach was incontrovertibly no longer acceptable; lawyers were firmly and appropriately reminded of the paramountcy of the duty to uphold the principle of the rule of law and the proper administration of justice. It is perhaps regrettable, given what many believe to have been a significant change in emphasis brought about by the first SRA warning notice (and the associated consequences for lawyers if their behaviour came to be criticised by the SRA), that the first warning notice failed to conclusively and decisively set parameters within which lawyers were permitted to work; it is also perhaps unsurprising that the regulated community has been looking for more clarity from the SRA on those aspects of the original warning notice that were unclear or incomplete. In that sense the revised notice is very much to be welcomed.
New examples of the improper use of NDAs
The revised warning notice provides further guidance as to the SRA’s expectations on the proper use of NDAs. In particular, it now includes additional examples of what the SRA considers, in fact, to be the improper use of NDAs, including where those dealing with NDAs seek to:
- use an NDA to prevent proper disclosure about the agreement or circumstances surrounding the agreement to professional advisers, such as legal or tax advisors and/or medical professionals and counsellors, who are bound by a duty of confidentiality;
- include or propose clauses known to be unenforceable;
- use warranties, indemnities and clawback clauses in a way which is designed to, or has the effect of, improperly preventing or inhibiting permitted reporting or disclosures being made. For example, asking a person to warrant that they are not aware of any reason why they would make a permitted disclosure, in circumstances where a breach of warranty would activate a clawback clause.
New positive obligations when negotiating terms
The warning notice also now outlines what the SRA expects from those dealing with NDAs, on both sides of the arrangement. When dealing with NDAs, the SRA expects those it regulates:
- to use standard plain English and to make sure that the terms are clear and relevant to the issues and claims likely to arise;
- to be clear in the NDA what disclosures can and cannot be made and to whom;
- to provide clear advice to clients about the terms of the NDA to help ensure that there is no confusion about what is or is not permitted. The SRA explains that confirming such advice in writing may help the individual bringing the claim if issues arise at a later date and may also help those it regulates if a concern is later raised about their role in advising on the NDA;
- if the agreement is or forms part of a settlement agreement under the Employment Rights Act 1996, to ensure that they are aware of the requirements governing those agreements, including for the employee to be in receipt of independent advice (while this final point formed part of the previous version of the Warning Notice it has been firmed up as a clear obligation in the latest version, rather than something that ‘should’ be ensured).
Greater detail on the duty not to take unfair advantage
The revised warning notice includes a dedicated section entitled ‘Duty not to take unfair advantage.’ This section goes further than the earlier version of the warning notice in making clear that taking unfair advantage of an opposing party, whether unrepresented or represented by a lawyer, professional adviser, litigation friend, intermediary or other third party, would result in a breach of professional obligations.
Particular examples of where this would be the case are then cited:
"taking advantage of an opposing party’s lack of legal knowledge or where they have limited access to legal representation or advice, for example proposing or including a clause which you know to be unenforceable, or threatening to litigate upon such a clause;
applying undue pressure or using inappropriate aggressive or oppressive tactics in your dealings with the opposing party or their representative, for example, imposing oppressive and artificial time limits on a vulnerable opposing party to agree the terms of the NDA;
seeking to rely on your position as a solicitor as a means of exerting power over the opposing party, for example, by discouraging them from taking legal advice;
preventing someone who has entered into an NDA from keeping or receiving a copy” (this example appeared in the previous warning notice).
The SRA concludes this section by warning, ‘[w]here the opposing party is vulnerable or unrepresented, your obligations to make sure there is no abuse of position, or unfair advantage taken, will be heightened.’ Solicitors should therefore take enormous care when they know or suspect the employee is unrepresented. Indeed conversely it might seem a considerable advantage to the lawyer for the employer if the employee has legal representation in these situations.
Further guidance in this area was needed and is to be welcomed. The revised warning notice now focuses on not only the ‘don’ts’ for NDAs but also the ‘do’s.’
The explicit reference to clawback clauses brings such provisions firmly within the SRA’s regulatory remit and is of particular significance given the wide reaching ramifications of such clauses, often when the party impacted is unrepresented.
As the updated warning notice itself aptly illustrates, this is an evolving area. Familiarisation with the terms of the revised warning notice is essential for all those involved, on either side, of negotiating NDAs. As with the previous iterations, the SRA’s position is that the notice is declaratory in effect providing a “reminder of some of the key issues and risks that [lawyers should] be aware of when dealing with NDAs”, failure to comply with which may lead to disciplinary action. This measure of flexibility around the retroactive effect of the warning notice, whilst perhaps understandable from a regulatory-policy perspective, does however introduce a corresponding measure of potential uncertainty as to the application of the guidance to NDAs agreed either before the notice was amended or indeed first issued.