In August of this year, the Solicitors Regulation Authority (SRA) released their Thematic Review of the use of Non-Disclosure Agreements in workplace complaints (Review). Aimed primarily at lawyers, the Review provides helpful non-binding guidance to lawyers working with Non-Disclosure Agreements (NDA), however the key takeaways are relevant to all of those involved in negotiating, drafting, advising on and enforcing NDAs.
As a reminder, an NDA is any form of agreement or contract, or a clause within a wider agreement or contract, under which it is agreed that certain information will be kept confidential. In the employment context, you will often find NDAs within settlement agreements, COT3s and employment contracts.
The use and misuse of NDAs has been in the spotlight in recent years following the high-profile case against Harvey Weinstein in 2017, in which it became known that he had inappropriately used NDAs to prevent his victims from reporting his criminal conduct. Since then, the SRA in particular has kept NDAs firmly on the agenda and in March 2018, the SRA published a Warning Notice on the use of NDAs (which they updated in 2020) and in August 2023, they published a Thematic Review of NDAs.
In the introduction of the Review, the SRA makes it very clear that “In the vast majority of cases, non-disclosure agreements (NDAs) provide a legitimate legal means for protecting the interests of a business or individual”, nonetheless, the Review highlights a number of issues relating to the use of NDAs, which lawyers and non-lawyers can use to guide best practice.
1. Consider whether an NDA necessary
The Review highlights guidance from Acas on NDAs, which advises that “before making any proposal [of an NDA], always give careful consideration to whether or not a confidentiality clause is necessary or appropriate in the circumstances”.
Including NDAs in employment contracts, settlement agreements and COT3s is likely to be appropriate in circumstances where an organisation is looking to protect valuable confidential information about its business, however including an NDA should still be assessed on a case by case basis. This includes considering the scope of an NDA if one is used. For example, there may be a distinction between NDAs which seek to keep particular details of an agreement confidential (such as financial terms) and those which seek to keep the existence of the agreement or details of the termination of employment confidential. Consider how far the NDA should extend in each case.
2. Consider the SRA’s Warning Notice
If you have decided an NDA is necessary and appropriate, you should ensure that you have considered the contents of the SRA’s Warning Notice, which includes (amongst other things) specific carve outs that all NDAs should include to allow reporting in the following circumstances:
- co-operating with a criminal investigation or prosecution,
- reporting an offence to a law enforcement agency,
- reporting misconduct, or a serious breach of our regulatory requirements to us [the SRA], or making an equivalent report to any other body responsible for supervising or regulating the matters in question,
- making a protected disclosure under the Public Interest Disclosure Act 1998, and
- disclosure about the agreement or circumstances surrounding the agreement to professional advisers, such as legal or tax advisors and / or medical professionals and counsellors, who are bound by a duty of confidentiality.
3. Tailor templates
The Review found that standardised template documents which include NDAs (eg template settlement agreements) tend not to take account of the individual circumstances of a given case and may result in inhibiting or deterring disclosure of information to relevant authorities or agencies. Therefore, while acknowledging that templates can be useful, the SRA advises that care should be taken to ensure they are up to date and appropriate and highlights the need to tailor agreements / clauses to the specific facts of the case or individual involved. Templates, if used (and there are good reasons to use templates; templates aid efficiency and are cost effective), should be reviewed and updated regularly and should only be used in combination with careful tailoring of the NDA.
4. Avoid short artificial deadlines
A further finding of the Review, was that employers tend to set short time limits (typically seven days) for an employee to sign an agreement containing an NDA and that this can restrict the employee’s ability to obtain advice to make informed decisions. Whilst it remains sensible, from an administrative perspective, to specify a deadline for receipt of a signed agreement, employers and their advisors should avoid setting short artificial deadlines which put undue time pressure on employees, which may risk employees feeling pressured to sign an NDA without proper advice (in the case of a settlement agreement, obtaining independent legal advice from a relevant adviser on the entire agreement, including any NDA, is essential to ensure that the settlement agreement is valid).
The Review found that more than a third of lawyers surveyed were unaware of the SRA’s Warning Notice and that only 12 per cent of firms provided specific NDA training, so the SRA recommends that firms should provide training on NDAs. Although organisations often involve lawyers in drafting or advising on agreements containing NDAs, many organisations will not involve lawyers (for cost reasons or otherwise) so training non-lawyers working with NDAs on the appropriate use of NDAs is advisable.
The SRA has committed to reviewing the Warning Notice in light of the findings of the Review and the government has periodically indicated that legislation will be introduced to Parliament ("when parliamentary time allows") that will regulate the use of NDAs, so it is clear that NDAs will remain under scrutiny for the foreseeable future. Further, the reputational risk of inappropriately using NDAs is considerable (today’s cancel culture is unforgiving), so organisations would be well advised to ensure they are complying with best practice relating to NDAs.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, October 2023