In the wake of the #MeToo movement, the issue of non-disclosure agreements (NDAs) that prevent victims of sexual harassment and other illegal and inappropriate behaviour from speaking to relevant authorities came sharply into focus.
In the past, to address this issue, the Solicitors Regulation Authority (SRA), which regulate solicitors in England and Wales, and the Law Society of England and Wales have issued guidance to solicitors on NDAs to ensure that justice must come first. However, in the current climate, is it time for the guidance to be looked at again? This is what the House of Commons Women and Equalities Committee (the Committee’) stated in its published report dated 11 June 2019.
Maria Miller MP, Chair of the Committee, said NDAs were having a ‘destructive effect on people’s lives’ and added that organisations have a duty of care to provide a safe place of work for staff, which includes protection from unlawful discrimination.
The report noted that although NDAs were originally designed to stop staff sharing trade secrets if they changed jobs, they are now being used to ‘cover up unlawful behaviour’.
Ms Miller stated that the use of NDAs in settling sexual harassment allegations is ‘at best murky and at worst a convenient vehicle for covering up unlawful activity with legally sanctioned secrecy’. Ms Miller added it was ‘worrying’ that gagging clauses were sometimes being traded by employers for job references.
The report stated that further guidance was needed from regulators to highlight the responsibilities of lawyers, professionals and managers to ‘report up’ to senior managers any concerns they may have about systemic issues with culture and discrimination, or about repeated or ‘especially worrying’ allegations of improper behaviour by a particular individual or in a particular business area.
The report stated that the SRA ‘must make it clear to those they regulate that they will take rigorous enforcement action’ if they become aware of ‘actions and behaviours that do not meet the high ethical standards expected of legal professionals’.This, the Committee’s report said, ‘should be set out in guidance and followed up by appropriate action’.
The Committee repeated a previous recommendation that provisions in confidentiality agreements that can reasonably be regarded as potentially unenforceable ‘should be clearly understood to be a professional disciplinary offence for lawyers advising on such agreements’.
The Committee was ‘particularly struck’ by the evidence it heard that NDAs are used so routinely when settling employment disputes and, in particular, discrimination and harassment cases ‘that many employers and lawyers believe them to be integral to settlement agreements’. Lawyers were told by the Committee that they ‘must think more carefully about why they are requesting confidentiality and whether it is needed at all’. The Committee added that any use of confidentiality clauses needed to be clear and specific in scope.
Since the Committee’s report has been published, the Law Society has stated that ‘[w]e have sought to lead an open and frank discussion within the legal community about the use of NDAs and confidentiality clauses’ and that ‘[w]e regularly review our guidance to solicitors and update as law and regulations evolve’.
The SRA said recently that employees should be given a ‘cooling-off period’ before signing NDAs. The SRA also backed the idea that no NDA should prevent people from reporting concerns to law enforcement agencies, whether or not drafted by solicitors – which, they said, is specifically prohibited in the SRA’s NDAs warning notice issued in 2018. The SRA also commented on the usefulness of standardised wording ‘setting out what [NDAs] cannot exclude as a matter of law’.
It is clear from the Committee’s report that this matter needs to be addressed again. As a start in that process, it would be beneficial for the SRA and/or the Law Society to revisit, update and clarify their guidance on NDAs for solicitors. In the meantime, practitioners should be cautious when drafting a NDA to ensure that it does not potentially restrict the rightful reporting of illegal or inappropriate behaviour.
The Law Society’s practice note aimed at all solicitors who draft NDAs warns that, when drafting NDAs, solicitors need to remember that, under the SRA Code of Conduct, their duty to clients is subject to a duty to the court and to the administration of justice; ‘[w]here two or more mandatory principles come into conflict, the principle which takes precedence is the one which best serves the public interest in the circumstances, especially the public interest in the proper administration of justice’.
Nicola Kerr, Employment Partner at Brown Rudnick commented:
‘The SRA and Law Society must be careful not to throw the baby out with the bath water. While NDA’s should not be used to cover up discrimination and harassment, reciprocal confidentiality provisions in settlement agreements are an essential ingredient of commercial settlements, and a benefit to employees as well as employers. Without NDAs, settlement (including severance payments to employees) may not be achievable. Accordingly, confidentiality provisions should continue to play an important role in the private employment relationship, and its termination.
This article was first published in the IBA Litigation Committee newsletter in September 2019, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.