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Regulator gets tough on the inappropriate use of NDAs

14 March 2018

#Timesup has been called on the inappropriate use of NDAs to silence victims of sexual harassment or other conduct that might otherwise be reported to regulators or the police. In an unusual move, the Solicitors Regulation Authority (SRA) has issued a warning to law firms and solicitors that it will be tough on those who misuse NDAs. This warning will not only affect those regulated by the SRA but will also impact any business advised by practitioners.

NDAs are not prohibited

To be clear, the SRA has not said that NDAs or settlement agreements with non-disclosure clauses are prohibited. Indeed, these are legitimate legal devices to protect confidential issues, which are of benefit to both employers and individuals. Its concern relates to their use in limited specific circumstances, particularly where the misconduct is serious and would be criminal or in breach of regulatory rules.

What amounts to an inappropriate use of an NDA?

The SRA has helpfully listed those circumstances in which it would consider the NDA to have been improperly used in breach of its rules and therefore subject to sanctions. These circumstances are where any provision prevents or seeks to deter a person from:

  • reporting misconduct or a serious breach of regulatory requirements to 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 (whistleblowing disclosures);
  • reporting an offence to a law enforcement agency such as the police; or
  • co-operating with a criminal investigation or prosecution.
The future of NDAs and settlement terms for harassment claims

Post-Weinstein we are frequently asked by clients what changes they should make to settlement agreements. Surprisingly, most templates require very little amendment. It may be worth including a clause that makes it clear which disclosures are not prohibited so that the individual is in no doubt about this. Such a provision is commonly used in many sectors, and is a regulatory requirement in financial sector firms that are subject to whistleblowing rules. Settlement agreements must include wording to the effect that the individual is not prevented from making a protected disclosure. Nor is it lawful to include a warranty under which the individual confirms that they have not made a protected disclosure and that they do not know of any information which could lead to them making a protected disclosure.

Most of the work required does not lie in the documentation but in the practices and management that pre-date any allegation of sexual harassment and which continue all the way through to the treatment of both the complainant and the perpetrator. Recent events have shown that a failure to ensure that cultural issues are addressed, and that where there are issues they are dealt with appropriately, can have catastrophic consequences.

Action List
  • Like the SRA, management need to start sending messages from the top about workplace culture and conduct and to set expectations about non-compliance.
  • Staff need to be trained about what is acceptable and what is not. Don’t assume that they know that workplace conduct rules apply at out-of-office events which are closely connected to the business. Do they also know that intentions are irrelevant and that a great deal of discriminatory behaviour is subconscious, and that what is key is how the individual feels about the conduct or comments?
  • Line managers and those in the front line must be trained on how to deal with allegations of harassment and on how to manage the complainant and the alleged perpetrator. It will be very important to support the complainant through the process so it is evident that misconduct of this nature will not be tolerated.
  • Organisations may want to consider setting up a specialist unit to deal with allegations in order to maintain consistency and build expertise and best practice.
  • Those dealing with allegations need clear guidelines and support on how to manage the process from disclosure to resolution and beyond.
  • Is the ‘speak up’ policy and the culture surrounding it fit for purpose? Do employees feel that they can raise concerns? Has this been tested?
  • At the point where settlement is being considered, go through the necessary steps and guidance to be clear that it is not in breach of regulatory rules or ethical codes of conduct.
  • And finally - make sure that any NDAs go no further than permissible.

The take away message for employers is that the workplace world has changed. This is an opportunity to set the values agenda for the future. Employers would be wise to seize it.

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