Non-Disclosure Agreements: do you know where your duties lie?
Posted on 11 March 2019
Gideon Habel looks at how a solicitor’s professional conduct duties are engaged when negotiating confidentiality.
In January, the Women and Equalities Committee (WEC) continued its inquiry into the use of non-disclosure agreements in discrimination cases with evidence from highly respected employment lawyers. Here, regulatory lawyer Gideon Habel looks at some professional conduct bear-traps for solicitors advising on NDAs involving misconduct.
As a regulatory lawyer, I was pleased to see time given over at January’s Women and Equalities Committee (WEC) session to considering how a solicitor’s professional conduct duties are engaged when negotiating confidentiality.
I am not an employment lawyer, so I was interested to learn the following: firstly, confidentiality clauses are a standard feature of end-of-employment settlement agreements, often desirable to both parties for perfectly legitimate reasons; and, secondly, there has been an increased focus in recent times among employment lawyers on regulatory and conduct issues when negotiating and advising on confidentiality.
NDAs and the SRA’s Principles
The second point reassured me. Since the Zelda Perkins / Harvey Weinstein case, these conduct issues have been in the public eye. They’ve also been very much on the SRA’s radar (it issued a Warning Notice on NDAs in February 2018), UCL’s Centre for Ethics and Law (CEL) produced a Think Tank report (in May 2018) and the Law Society published a helpful Practice Note only a few weeks ago.
Despite this, it was clear from the WEC session that there’s still a lack of awareness among some employment practitioners. Below, I look at some less obvious (and unintended) outcomes and, with the SRA Principles to hand, at how advising clients on NDAs involving certain types of misconduct can trigger professional conduct bear-traps for solicitors.
Perverting the course of justice
Negotiating NDAs which seek to control the parties’ freedoms to report allegedly unlawful behaviour to law enforcement agencies risks perverting the course of justice; say, for example, you are instructed to negotiate confidentiality terms for an employer that bars an individual from reporting to police a sexual assault by a director. Firstly, it’s important to note, as the CEL points out, that the Court of Appeal has previously said it’s not necessary for proceedings to be underway for conduct intended to affect them amounting to perverting the course of justice. Secondly, a number of duties under the SRA Principles would be at play, some conflicting. Where that’s the case and you have to decide which should take precedence, Note 2.2 to the Principles is clear: ‘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.’
Your starting point might be that, by requiring the term’s inclusion in the agreement as instructed, you’re acting in your client’s best interests (Principle 4) by preventing harm to its reputation. However, you’d also (albeit perhaps unwittingly) potentially be helping to pervert the course of justice, in breach of your duties to uphold the rule of law and the proper administration of justice (Principle 1). That probably wouldn’t be behaving in a way that maintains the trust the public places in you (Principle 6). You’d also potentially have failed to act independently (Principle 3) in continuing to act despite the impropriety of the instruction, and without integrity (Principle 2) in insisting on its inclusion in light of that impropriety and the knowledge of its potential consequences.
This is an extreme example, but less extreme facts still give rise to similar risks: clauses seeking to control a party’s ability to cooperate with police in a criminal investigation or to assist other victims in proceedings – civil or criminal – by, for example, giving evidence pose similar problems.
Your overriding duty here, then, isn’t to your client but to the administration of justice and to the court.
Preventing vulnerable individuals from seeking treatment
Some victims of discriminatory conduct at work can be traumatised by the experience and may want to seek medical treatment or psychological support. That trauma can be perpetuated by a protracted negotiation of the end of their employment relationship. It can also mean they don’t feel ready to seek treatment until sometime after the ink has dried on any settlement agreement. Solicitors advising both employers and individuals must be alive to this because confidentiality conditions that would prevent or interfere with an individual being able to access treatment could end with both sides’ representatives breaching their professional obligations.
Take a more extreme example of a confidentiality clause requiring an individual to seek permission from the former employer to seek treatment, and requiring treating professionals to sign an NDA before treatment could start. From the employer’s solicitor’s perspective, including such a provision in an agreement would be unlikely to be behaving in a way that maintains the trust the public places in you (Principle 6). From the employee’s advisor’s perspective, it’s arguable that agreeing such a clause wouldn’t be acting in the client’s best interests (Principle 4), even if you have clear instructions to do so because, for example, the client simply wants the negotiations concluded as soon as possible. I understand NDAs of this type are more commonly drafted without this sort of limitation but, if faced with one (or something similar) and if your client was insistent on accepting the provision, a clear contemporaneous note of your advice about the clause’s implications before the agreement is signed would help mitigate suggestions of breach of Principle 4.
Failing to report serious misconduct to the SRA
Solicitors practising in this area should keep closely in mind your own duties to report to the SRA. Principle 7 requires you ‘to comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner’. Outcomes 10.3 and 10.4 then impose duties, respectively, to ‘notify the SRA promptly of […] serious failure to comply with or achieve the Principles, rules, outcomes and other requirements of the Handbook’ (ie in respect of your own conduct) and to ‘report to the SRA promptly, serious misconduct by any person or firm authorised by the SRA, or any employee, manager or owner of any such firm’ (ie anyone else who’s SRA regulated). Failure to achieve these mandatory outcomes could constitute professional misconduct and also amount to the more serious offence of breach of Principle 7.
Given the potential lack of awareness of the regulatory pitfalls in dealing with NDAs, one area where reporting duties can be particularly relevant is when engaging with solicitors on the other side of a negotiation. To give an example: where an opposing solicitor on its employer-client’s instruction seeks to impose terms like those above relating to non-disclosure of unlawful conduct (which would likely involve the solicitor breaching SRA Principles), outcome 10.4 potentially requires you to report that misconduct to the SRA. If you don’t, you could ultimately find yourself subject to regulatory action for failing to. This is, admittedly, an extreme example, so let’s ask a more nuanced question: where an opponent solicitor hasn’t realised that a term they proposed on behalf of a client could put them in breach of their professional obligations, is the duty to report engaged? In short, the answer is ’probably not’ - it’s unlikely that simply proposing a dubious term would constitute serious misconduct - but there’s certainly no harm in pointing out your concerns about the term and your SRA reporting duties while inviting them to re-visit their client’s instructions on the point.
SRA regulated law firms provide a particularly good example of how knotty reporting issues can be when dealing with NDAs for unlawful conduct. Take the situation where an individual leaves a law firm following serious misconduct by them or another person at the firm. The departing individual, the firm and its staff are all SRA regulated. Not only do they all owe separate duties under the Principles but also duties to self-report and report on others’ serious misconduct where appropriate. An in-house solicitor responsible for negotiating for the firm will therefore need to have in mind advising the firm (and in particular its CoLP) on these reporting duties. In these circumstances, there could be duties to report to the SRA on one or more of the following, depending on who misconducted themselves: the individual departing the firm; another member of staff; and perhaps even the firm itself. The in-house solicitor will also need to consider the implications of those reporting duties for any settlement agreement. Where the CoLP declines to report, the individual solicitor will likely remain under their own individual duty to report serious misconduct to the SRA despite the CoLP’s failure to do so. The CoLP’s failure in itself – and any attempt to include a provision preventing reporting to the SRA in the NDA – may also constitute serious misconduct. In such circumstances, the SRA offers some support for whistleblowing employees but that may come as cold comfort in the circumstances.
Taking unfair advantage
Given that there’s usually a power imbalance in the employer’s favour in negotiating end-of-employment settlements, in-house solicitors and those acting for employers should have mandatory outcome 11.1 in mind throughout. This outcome requires you ‘do not take unfair advantage of third parties in either your professional or personal capacity’.
A frequent cause of concern, in this regard, is the wish by employers to include punitive “clawback” clauses which purport to entitle the employer to recover from the individual all monies paid under a settlement agreement should the terms be breached. Where an action for breach of contract would already arise in such a case, the extra “clawback” clause is unnecessary and, what’s more, oppressive: colleagues have also told me anecdotally that clients are often intimidated and further silenced by them, beyond even the parameters of the confidentiality clauses themselves.
Remember: outcome 11.1 applies whether or not the other party is represented, so the fact there’s a lawyer on the other side probably doesn’t mean it’s a good idea to try every trick in the book. In fact, a good rule of thumb to ensure compliance would seem to be simply to treat (and encourage your client to treat) your opponents fairly when dealing with NDAs.
Doing the right thing
Clearly, solicitors advising on and negotiating NDAs involving discrimination and other conduct issues have a considerable responsibility to weigh up their regulatory duties in doing so. The implications of addressing these properly aren’t always simple. They may involve difficult conversations with clients (particularly employer clients who might wish to do everything possible to prevent the spread of negative information and to protect its reputation). You might even find yourself having similar conversations with fellow solicitors on the other side.
Difficult as those are, we should all, as solicitors, buy into the idea that educating others (where necessary) about our proper role - and the limits to it - is an essential part of job. If it helps to ensure that the law is upheld and that people are treated fairly, with dignity and respect, where that hasn’t always been the case in a given relationship, it’s a job we can’t shirk from doing.
This article was originally published in the Employment Lawyers Association Briefing for March 2019.