One in 10 law firms find unenforceable clauses in NDAs despite SRA clampdown, study finds

Survey shows that more than a third of lawyers were unaware of UK regulator’s 2018 warning notice

Only one in eight firms provide specific training on NDA drafting Shutterstock

Lawyers in England and Wales say they are still finding unenforceable clauses in non-disclosure agreements (NDAs) despite a warning issued by the Solicitors Regulation Authority (SRA) five years ago making it clear that NDAs should not be used to intimidate people from reporting wrongdoing.

As many as 10% of law firms say they have identified unenforceable clauses in NDAs prepared by other firms, while only one in eight firms say they provide staff with specific training on drafting NDAs, according to an SRA survey of 150 firms which provide employment services, including 59 large or very large firms

Only a quarter of the 25 firms visited by the SRA as part of the research had ever questioned a client on whether inclusion of an NDA was appropriate when asked to prepare one.

More than a third of fee earners said they were unaware of the SRA’s 2018 warning notice about NDAs, which was issued against the background of mounting public concern over their use by powerful individuals, including American film producer Harvey Weinstein, to silence victims of sexual harassment.

The SRA reminded solicitors that NDAs, which are widely deployed to protect trade secrets, can’t be used to influence, prevent, impede or deter a person from reporting potential misconduct to the police or regulators. The notice also warned that lawyers must not apply inappropriate pressure, employ aggressive negotiating tactics or include unenforceable or oppressive clauses when drafting NDAs.

The SRA says it will now run an awareness campaign to review and reinforce issues and best practice highlighted in its warning notice.

Juliet Oliver, the SRA’s general counsel, said: “While we found no direct evidence of firms intentionally seeking to suppress the reporting of wrongdoing, we did find examples of concerning trends and practices which may inhibit or deter disclosures.

“From employees having insufficient access to independent legal advice, to employers imposing tight time limits and a sense of urgency to complete settlements, the report also found significant imbalances in power between parties signing NDAs.”

In May, the Legal Services Board (LSB), which is the oversight legal regulator for England and Wales, launched a call for evidence "on the role that lawyers’ conduct can play in the misuse of non-disclosure agreements (NDAs) and how regulation might help address it by supporting lawyers to better meet their professional ethical obligations".

However, in its response, the Bar Council of England Wales accused the LSB of "muddled thinking", adding: "The use of an NDA in any particular set of circumstances, will be either, lawful or unlawful, but that is (self-evidently) a purely legal question.

"There is no safe basis upon which to attempt to define, and restrict the use of, a category of NDAs which are ‘lawful but illegitimate/ unethical’. We are left totally uncertain what precisely is meant, in the context of this consultation, by 'the misuse of NDAs'."

Commenting on the SRA's latest research, Mark Anderson, managing partner of tech law boutique Anderson Law and an Honorary Professor of Practice at UCL, wrote on LinkedIn: “The SRA's comments do seem to involve a mission creep beyond compliance with regulations to a more nebulous idea of ethics. I support solicitors taking an ethical approach, but I am doubtful about this being achieved through more rules or guidance from the SRA. I would prefer to see the Law Society treating this as a matter of representing the profession and its reputation by issuing guidance.”

The SRA research found that while some employers offer discretionary payments to staff who are being asked to sign NDAs, in some cases these only fund the most basic level of legal input. The SRA also found limited records evidencing clear verbal or written advice to employees prior to signing an NDA.

The SRA says firms and their clients routinely underestimate the risks and consequences arising from NDAs, such as what the terms of an agreement mean to a signatory and what it may prevent them from doing in the future. Firms and clients are typically focused only on the size of any possible financial settlement, the SRA said.

Email your news and story ideas to: [email protected]