Earlier this month, the Solicitors Regulation Authority (SRA) updated its warning notice on the appropriate use of non-disclosure agreements (NDA), creating increased regulatory obligations for lawyers advising on, drafting and negotiating settlement agreements.
The updated warning notice reflects principles set out in existing Acas guidance which applies to anyone involved in settlement agreements. Whilst the warning notice only applies to those regulated by the SRA, i.e., law firms and lawyers (including in-house lawyers), it will be interesting to see whether the changes, which effectively give teeth to certain principles in the guidance as they apply to lawyers, have a wider impact on market practice approach to NDAs in settlement agreements. Failure by lawyers to comply with the SRA warning notice can result in them facing disciplinary action by the SRA for breach of their regulatory obligations.
Key new provisions in the SRA warning notice which lawyers must take note of are as follows:
- Do not use NDAs routinely: Previously absent from the SRA warning notice, the regulator now makes it clear that NDAs should not be used as a matter of course, and instead only included where the circumstances require. This principle has been in Acas guidance since 2020 so is not a new concept, but lawyers in particular should be prepared to give more thought to what is necessary and appropriate by way of confidentiality.
- Beware templates: The SRA warns against over-reliance on templates, without careful consideration of the specific circumstances and a tailoring of provisions to those circumstances. Linked to the point above, and again an existing concept from the Acas guidance, the regulator expects scrutiny over the use of what might previously have been seen as standard clauses.
- Adequate time to consider terms: Individuals should be given adequate time to consider and respond to NDA terms and to seek advice. The SRA also says that unreasonable time limits should be challenged, whether coming from the employer or the employee. Consistent with existing Acas guidance, the sentiment is to avoid putting parties under undue pressure to agree confidentiality terms, and instead allow adequate time to read, reflect and be advised on what they mean. Lawyers negotiating settlement agreements will need to be mindful of this principle, particularly where there is client/commercial pressure to conclude a deal very quickly.
- Adequate funding: It is common practice for employers to contribute towards an employee’s legal fees for advising on a settlement agreement, and the SRA recognises that there may be limits on the extent of advice depending on funding constraints. Notwithstanding this, the SRA expects openness over these limitations and says that, regardless of the level of funding, clear advice should always be given to the employee about what the NDA does and does not permit them to do. As a result, employers offering a settlement agreement with confidentiality provisions may be asked to increase their financial contributions to enable the employee’s advisor to provide more detailed advice.
- Training and support: The SRA requires its regulated firms to ensure that all those dealing with NDAs have adequate training and support on the issues covered in the SRA’s warning notice. Whilst not expressly covered by the warning notice, it would be prudent for in-house lawyers to also ensure that they and the relevant teams also have appropriate training and support in place to ensure compliance with the above principles by regulated individuals.
The use of NDAs in settlement agreements has been in the spotlight for several years, and these enhanced regulatory requirements demonstrate a continued focus on trying to ensure confidentiality provisions are not used inappropriately. The previous government had committed to legislating to clarify that NDAs should not be used to prevent the reporting of a crime or to discuss concerns with the police, lawyers, or support services who have professional confidentiality obligations although this did not progress before the election and has not been a feature of the new government’s priorities.
Whilst the new government did put a halt on legislation which would have banned NDAs in higher education in respect of complaints of sexual abuse, sexual misconduct, sexual harassment or other bullying and harassment, it remains to be seen if there will be an increased crackdown by law or by industry regulators.