My recently submitted written submission to the Women and Equalities Committee are now up on their website. It covers a range of things, including the Arcadia case, but one issue of more specialised interest might be worth highlighting on this blog.
I wrote a section on “Regulator and professional failures to recognise and warn of the risks?” dealing with the SRA’s Warning Notice and the Law Society’s Practice Note on NDAs. Interestingly, since writing the submission, but prior to its publication, I have started to pick up some disquiet about the Law Society’s Practice Note from sources in the profession. So I think my instinct that the Law Society should amend or withdraw that Note is the right one. Here is what I said about the issues.
Whilst the SRA acted quickly to tackle the problems first emerging with NDAs in harassment cases in issuing their Warning Note, I think there their guidance can be improved. For reasons which I will explain, the guidance Law Society has offered is inadequate. It is notable too that the Bar Standards Board has decided against publishing guidance. This is regrettable.
The 2018 Warning Notice on Use of non-disclosure agreements (NDAs), concentrates on the “use [of] NDAs in circumstances in which the subject of the NDA may, as a result of the use of the NDA feel unable to notify the SRA or other regulators or law enforcement agencies of conduct which might otherwise be reportable.” But it also warns against, using, “NDAs as a means of improperly threatening litigation or other adverse consequences, or otherwise exerting inappropriate influence over people not to make disclosures which are protected by statute, or reportable to regulators or law enforcement agencies.”
In particular they give clear warnings that:
“We consider that NDAs would be improperly used if you sought to:
- use an NDA 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 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
- reporting an offence to a law enforcement agencyn
- co-operating with a criminal investigation or prosecution.
- use an NDA to influence the substance of such a report, disclosure or co-operation
- use an NDA as a means of improperly threatening 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.
These warnings are reasonably clear and strong ones, but they could be amended to include risks to influencing civil proceedings and regulatory matters (beyond the SRA’s jurisdiction). I have seen an NDA where a gambling company has improperly sought to repress complaints being made to the Gambling commission, for instance. They should also make plain that they cover warranties as well as nondisclosure agreements.
More generally, the SRA show a proper concern both for what NDAs “stipulate” and the “impression” they give to the parties to those NDAs. And they suggest, “It may be appropriate for the NDA itself to be clear about what disclosures are not prohibited by the NDA.” They warn against the associated use of, “improper threats of litigation or improperly influencing a party by reference to other adverse consequences of making such report or disclosure.” “Unsustainable” threats of defamation proceedings are similarly subject to criticism.
The inclusion of compensation clawbacks, of the kind we see in Alex’s agreement [the agreement published in the Arcadia judgment], may be unenforceable penalty clauses, which are also attempts to take unfair advantage of a weaker party.
A significant concern is to prevent unfair advantage being taken of unrepresented parties. They keep open, obliquely, the possibility of represented parties being taken advantage of unprofessionally under the Code, but do not specify this directly or with any specific examples.
And they say, “You will also need to ensure that the NDA does not include clauses known to be unenforceable.” This might actually be quite narrow in effect, as clauses known to be unenforceable would generally be rather few and far between. The clauses referred to above in relation to Alex’s agreement, for instance, might well be unenforceable but we do not know that for certain.
The Law Society’s guidance is a less useful document. It appears more concerned about asserting the legitimacy of using NDAs than it does about dealing effectively with the risks. In particular, it seems more concerned to emphasise the legitimate role NDAs have in protecting reputation than the SRA document (the SRA is more cautious but recognises protection of reputation might sometimes be a legitimate objective of an NDA). The Law Society also say that NDAs can be used where potentially serious concerns have been investigated and a fair process has been followed “regardless of whether or not the allegations are substantiated.” This does not suggest where they cannot be used, and suggests that substantiated allegations of potentially serious wrongdoing can nonetheless be subject to obligations of confidentiality to protect reputation.
In general it is less restrictive in its approach to NDAs than the SRA. As an example, they say that “Blocking the reporting of information that is relevant to regulating a sector is likely to be unacceptable to regulators,” keeping open the possibility that it is legitimate in certain (unspecified) circumstances. They do not consider at all the possibility that it might be a criminal offence or professional misconduct to so block information.
They list common exceptions to confidentiality clauses but do not recommend that they are adopted as a minimum requirement of best practice. Nor do they consider whether, or in what circumstances, these exceptions might not go far enough. Similarly they do not consider the potential for NDAs to inhibit the preparation of evidence in civil cases (outlined above) save to acknowledge a normal exception to an NDA would be, “in compliance with an order of, or to give evidence to, a court or tribunal of competent jurisdiction”. This exclusion is not very clear in any event and does not, in my view, go far enough to prevent the chilling effect of NDAs on the conduct of civil cases (discussed [elsewhere ein the submission but not in this blog]).
In considering whether NDAs and/or confidentiality clauses are understood (or intelligible) they only go as far as saying, “It is good practice to give anyone signing an NDA clause time to consider the implications of the proposed agreement, including giving them sufficient time and opportunity to obtain independent legal advice.” They do not suggest that it is any part of the drafting lawyer to make their confidentiality clause clear and intelligible to those expected to be governed by them. This is in spite of the risk that drafting opaque clauses which have the effect of overplaying the extent of confidentiality obligation and underplaying the extent of any exceptions puts the solicitor at risk of breaching the SRA Code of Conduct (through taking unfair advantage of their client’s opponent). I am confident from my discussions with employment lawyers that this kind of obfuscation is a reasonably common practice designed to strengthen the hand of employers and accused executives benefiting from such agreements. One can see in the evidence before the Committee that lawyers are aware of the potential problem when they call on others to draft better clauses for them. This could be seen as an abdication of their professional responsibility.
Similarly the Law Society suggest, “It will not normally be appropriate to fail to provide a copy of relevant terms to parties who are obliged to comply with them,” when the tenor of their approach is perhaps best captured by this final piece of advice on the topic, “If a client requests that a confidentiality arrangement be operated in such a way the solicitor should have regard to their regulatory duties before giving advice.”
Overall the Law Society’s practice is a disappointing document, that shows no ethical leadership in the field. It is consistent with an approach which seeks to represent the interest of some of its members (employment lawyers) in doing what they, and some of their clients [want]. It fails also, however, in protecting its members by not dealing anything like comprehensively with the ethical risks posed to their members by NDAs. Consideration of the public interest is most politely described as muted. Whilst it reminds solicitors of the SRA’s warning notice, it also runs the risk of diluting or confusing the messages in the SRA’s notice. It is a sign of what can be expected if calls for ‘the profession’ to be allowed to deal with this problem on their own are accepted: they are likely to put a particular view of the profession’s interest before the interests of the public.
The SRA also discusses NDAs in its recent guidance on Balancing Duties in Litigation. Saying:
“solicitors must make sure that they do not draw up clauses that go beyond what is necessary to settle the claim. They must not threaten consequences that cannot legally be enforced. In particular, solicitors must not seek to prevent anyone from reporting offences or co-operating with a criminal investigation and other legal processes, including influencing the evidence they give.”
“They must also not prevent someone who has signed an NDA from keeping a copy of the agreement.” Unlike the Law Society, they do not suggest there are any possible exceptions to this. The SRA advice (November 2018) pre-dates the Law Society’s practice note (January 2019). One would have expected a competent Practice Note, seeking to guide the Law Society’s members, to pick up this warning from the SRA.
The SRA suggest solicitors need to consider the vulnerability of those they oppose in harassment cases, “when communicating with them and when drafting an NDA.” And, that, “It might be in the interests of the client to avoid publicity for allegations, but the duty to the client does not override the solicitor’s duties to uphold the proper administration of justice, act independently, and to behave in a way that maintains public trust in the provision of legal services.”
Furthermore, “A solicitor may face disciplinary action if they: are complicit in unreasonable pressure to take unfair advantage of a victim or an unrepresented person on the other side; [and/or], are effectively complicit in seeking to conceal criminal activity.” And that, “Such conduct might also involve serious criminal offences. Attempts to discourage or limit disclosure of evidence to criminal or civil processes can amount to perverting the course of justice.”
This latter guidance appears to go further than the Warning Notice and it would be helpful to update and clarify the former, so that the two documents are consistent. It would be helpful too if such guidance could locate the issue of NDAs in their broader context, taking account of the obligations on lawyers when faced with allegations of misconduct against their (non-lawyer) employers (if working in-house) or clients. The nature and extent of any obligation to report up could be clearly spelt out, as well as obligations when conducting independent investigations. These latter two issues are probably of wider import than NDAs and might most sensibly be dealt with separately. The risks that NDAs pose to perverting civil cases might also helpfully be spelt out more clearly.