Lawyers and the misuse of NDAs

The Legal Services Board has published its report on the misuse of non-disclosure agreements (NDAs). It focuses on the conduct of lawyers and forms part of the LSB’s Reshaping Legal Services strategy, which centres on the delivery of high-quality legal advice with strong professional ethics.

Last year’s call for evidence was answered by a range of stakeholders. These included individual users of legal services (mostly for employment advice), regulators, trade bodies such as the Employment Lawyers Association and consumer representatives such as Maternity Action (MA). A total of 103 formal responses were received.

The LSB is interested in the role of legal professionals in constructing and using NDAs while ensuring ethical professional conduct, and also the role regulation can play here. NDAs are routinely used for legal but unethical conduct (bullying) and alleged illegal acts (including sexual offences). Their most widespread use is in employment cases.

A powerful submission from MA suggests that repeat offenders – employers who routinely discriminate against women because of pregnancy and maternity – are shielded from scrutiny by NDAs. It calls for recording and reporting of NDAs to curb such behaviour.

Much of the report details responses from individuals who have received employment legal advice. The responses expose an inexcusably poor level of legal advice, including: (1) legal professionals presenting NDAs as standard clauses but failing to explain their impact; (2) a lack of sensitivity when advising vulnerable individuals who are already sensitised by events at work; (3) individuals feeling they had no option but to sign an NDA and later regretting it; and (4) instances where the terms and effects of the NDA (and wider settlement agreements) have not been properly explained.

The report features evidence from individuals who report a devastating impact on their physical, mental and financial health because they cannot discuss the events that led to the NDA with others who could support them. Some reported needing years of therapy. Other key themes were the unacceptable time pressure placed on employees to sign NDAs; bullying behaviour from respondent/employers’ solicitors; being unable to find a lawyer willing to advise; and being unable to pay for good advice.

There is no legal obligation on an employer to pay for an employee to receive legal advice on an NDA, but under the Employment Rights Act an individual cannot waive their legal rights unless the settlement agreement is countersigned by a lawyer. It is customary for employers to offer a standard contribution to legal fees to obtain this advice but it is rarely enough to cover proper counsel.

The LSB cites instances of lawyers ‘rubber-stamping’ NDAs, rather than explaining to individuals the basis on which they may have an opportunity to challenge the terms. It goes on to reference that the lawyers advising ‘did not offer much guidance’, ‘ran through the motions’ and did not offer support or protection. One respondent cited a minimum level of work done by a lawyer on an NDA so as not to ‘rock the boat’ with the employer. Presumably, this was an employer who provides repeat work.

The report reveals an overuse of NDAs and a power imbalance between the parties. It also points to a lack of public understanding of legal rights in general and NDAs in particular.

The LSB intends to investigate further and will categorise the types of unethical behaviour before considering how legal service regulation can address this.

Of course, NDAs are not all bad. They can offer protection to victims of unlawful discrimination in highly sensitive circumstances. Some individuals welcome them. The difficulty is that NDAs are often critical to the employer’s willingness to pay a financial settlement. Confidentiality is a key motivator for employers. Would they be willing to make settlement payments to individuals that need to leave employment and start over if NDAs were not part of the deal? I doubt it. So where does that leave us in terms of solutions?

MA’s suggestion of recording and reporting the use of NDAs is appealing because it would ensure there is no abusive overuse of NDAs. It might be a good deterrent and could run across all protected characteristics. What about regulation limiting the scope of NDAs? Most agreements contain confidentiality obligations in relation to trade secrets. These are not strictly necessary as trade secrets are protected by common law. I can understand why an employer might not want others (particularly other employees) to know how much money they have paid to a departing employee, but why not limit the NDA to this information only?

In practice I cannot see any employer offering an NDA unless the circumstances around it are protected. Could regulators make NDAs unlawful in certain serious situations? Should they be unlawful for regulated professionals such as solicitors? Would a proper level of legal advice be available if employers had a legal obligation to pay a proper fee for comprehensive advice on NDAs? One issue is the independence of legal advice. Most companies retain solicitors to do this work and provide employees with a list of lawyers they can go to. Does this meet the legal obligation to obtain independent advice?

The public has a right to expect high-quality legal advice and it would appear they might not be getting it in relation to settlement agreements/NDAs. This must be the focus for further scrutiny. There should be stronger legal protections for legal professionals who report misconduct or bad behaviour to encourage such reporting.

Regulators might get a clearer picture if professionals were more willing to participate in the discussion.

Karen Jackson is a solicitor and managing director of didlaw, London