The catch and kill of non-disclosure agreements? New UK guidance

The SRA's Thematic Review published in August 2023 found that 'in the vast majority of cases, NDAs provide a legitimate legal means for protecting the interests of a business or individual' in that they can restrict the disclosure of specific sensitive, commercial or confidential information. When used properly, such agreements can operate to the mutual benefit of both parties.  This simple fact is too often lost in the understandably emotive debate post (for example) their purported use in the Harvey Weinstein cases. 

In August 2024, the SRA provided its most recent update to the warning notice on the use of NDAs originally published in March 2018. The SRA appear to have incorporated many of the findings of the Thematic Review. 

It mirrors a recent emphasis too by the Financial Conduct Authority (FCA) who are increasingly prioritising work on non-financial misconduct and last month published their key findings of how FCA-regulated firms detect and handle non-financial misconduct incidents. The FCA confirmed on 25 October 2024 that they expect that when firms enter into confidentiality agreements with staff, there are also these explicit exclusions. Indeed, the FCA themselves refer back to the guidance provided by the SRA's recent warning notice.

Codification of standards

The warning notice makes clear that the SRA use this term to include 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.  This is much broader than most legal practitioners will likely appreciate and is likely to catch most settlement agreements regardless of their context. 

The SRA make clear that the notice is relevant to all NDAs regardless of the context in which the NDA arises. It reiterates the regulatory obligations imposed on solicitors and the SRA Principles applicable when such work arises. At the time of writing, there are no published regulatory decisions recording action taken against solicitors for breaching the warning notice – although watch this space given the SRA's renewed focus in this area.

The SRA have provided helpful codification of when they consider that an NDA would be used improperly. It sets out that this includes if it prevents, impedes or deters someone from:

• 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, 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.

The notice also clarifies that the SRA would also consider an NDA is improper if it is used to:

• influence the substance of such a report, disclosure, or co-operation;
• prevent any disclosure required by law;
• prevent proper disclosure about the agreement or circumstances surrounding it to professional advisers, including medical professionals and counsellors, who are bound by a duty of confidentiality.

The SRA also make clear however that neither the warning notice nor our Standards and Regulations prohibit the use of NDAs.

What does this mean in practice?

It will therefore be wise for all involved to consider the following when deciding whether to use an NDA or terms of confidence in an agreement:

• Permitted disclosures – It is important not only that appropriate permitted disclosures are drafted in but that the terms outlining permitted disclosures are clear and relevant so that each party understands what disclosures can't be made and to whom. This will require using plain English in the document. The SRA expressly state that lawyers are obliged to provide very clear advice to clients on the terms of an NDA including the permitted disclosures.
• Necessity – The SRA emphasise that clients and law firms should consider carefully if an NDA is even necessary at all given the specific circumstances of the case – they certainly shouldn't be rolled out as standard. This is highlighted in the Acas guidance on settlement agreements.
• Not a mechanism to prevent proper reporting – great emphasis should be made on ensuring that they are not used to prevent proper reporting (whether to the SRA or other regulators and law enforcement agencies or to prevent disclosures which are protected by law). This would not include reporting by the media or press.
• Challenging unacceptable time limits - The SRA have clarified that a breach of the duty not to take unfair advantage can include imposing oppressive and artificial time limits in dealings with the opposing party or their representative. This means that artificial time limits on a party (to agree the terms of an NDA) must never been imposed and if you think are you on the receiving end of one this should be challenged.
• Funding – If there are funding constraints on the client side, solicitors must be very clear from the outset about the potential limitations of the advice which you can offer because of that. Notwithstanding the level of funding however, the SRA emphasise that clear advice should always been given about what the NDA does and does not permit them to do.

This codified SRA guidance however is welcome to all. 

The SRA guidance is also complementary to the proposed changes in the law contained within Section 17 of the Victims and Prisoners Act 2024 (which received Royal Assent earlier this year although it is not in force yet). Although it will not concern confidential information outside of a criminal context, section 17 states clear that there are disclosures which cannot be precluded by agreement. Once in force, section 17 will invalidate any clause in an NDA which prevents victims (or a person who reasonably believes they are a victim) from disclosing information about criminal conduct. This same requirement to include sufficiently wide permitted disclosures is precisely what the recent regulatory SRA guidance also tackles.

NDAs have no doubt had their fall from grace. The Legal Services Board report published earlier this year pointed to a real lack of public understanding of their own legal rights in general but NDAs in particular.  Recent high-profile examples have also shown that media and political scrutiny will continue to focus on their use, even simply regarding the fact of an NDA in certain circumstances. In a post #MeToo era, their use has attracted criticism.  The SRA do however by this notice appear to be recognising that banning NDAs will not solve the root cause of any wider issue for which NDAs are potentially a by-product.  Instead, as is explicitly recognised by the SRA by its recent warning notice, NDAs (and terms of confidence more generally) have their legitimate place in agreements to protect commercial interests, reputation, and confidentiality. As a result, it is therefore highly important that there is no misunderstanding by the public (or on the part of those working regulated professions) on what constitutes legitimate use and the core need for permitted disclosures.