Non-Disclosure Agreement and Confidentiality Clauses Guidance
Background
The Society has relevant regulatory objectives set out in section 1 of the Legal Services (Scotland) Act 2010 which relate directly to the legitimate use of NDAs: (i) supporting the constitutional principle of the rule of law (ii) supporting the interests of justice (iii) protecting and promoting the interests of consumers (iv) encouraging equal opportunities within the legal profession (v) promoting and maintaining adherence to the professional principles.
The House of Commons Women and Equalities Committee noted in its Sexual Harassment in the workplace report states: ‘Require regulators to take a more active role’. It goes on to note that the use of NDAs should be better controlled to ensure that they are not used unethically in cases where sexual harassment is alleged; that lawyers must be held to account for using or attempting to use certain clauses in an unethical way; that the use of provisions in confidentiality agreements that can reasonably be regarded as potentially unenforceable should be clearly understood to be a professional disciplinary offence for lawyers advising on such agreements.
Moreover, it recommends that regulators must also demonstrate that members of the legal profession will face serious sanctions if they sexually harass clients or colleagues or if they misuse NDAs to silence victims of sexual harassment, bullying or any form of inappropriate or abusive behaviour.
Our own written evidence to the Women and Equalities Committee noted that ‘To support a culture change, there is cogent public policy argument that Settlement Agreements entered into between employers and workers should not contain non-disclosure causes in relation to allegations of sexual harassment or unwanted sexual contact’.
Others who have acted in this area include the Equality and Human Rights Commission who have published their ‘’Ending Sexual Harassment at Work’’ and also considerable technical Guidance Sexual Harassment and harassment at work and their guide ‘’The Use of confidentiality agreements in discrimination cases.
1. Non-Disclosure Agreements Introduction, status and purpose
1.1. Introduction
The Guidance applies to the use of NDAs. We 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. It also applies whether you are acting on behalf of a client, for your own firm, in your capacity as an employer or for yourself, even if all parties to an NDA are legally represented and whether an NDA involves individuals or companies.
The Guidance is relevant to all NDAs regardless of the context in which the NDA arises including, but not limited to, employment matters, negligence claims and commercial transactions.
The Guidance applies if you are dealing with the terms or proposed terms of an NDA and your conduct in handling the matter. It also applies if the agreement is not a standalone or standard NDA.
It is not the purpose of the guidance to state or interpret the law, and it should not be read as seeking to do so.
The Guidance should be read in the context, and in consideration of, the wider Practice Rules and professional ethics and solicitors are reminded that they are required to adhere to these.
The status of guidance and what you should be aware of can be found here: status of Guidance.
1.2. Reason
The Society’s Regulatory Committee recognises that NDAs are often a legitimate way of protecting commercial interests, reputation, and confidentiality and the Guidance should not be read in any way as prohibiting solicitors from dealing with NDAs.
NDAs can be, and are often, an appropriate means of attaining a legitimate
Aim. However, the Regulatory Committee recognises that there is the potential that NDAs can be used inappropriately to restrict the position or actions of one or more parties and there has been recognised, legitimate and widely publicised concerns on the extent that NDAs are being used that way.
For example, NDAs being used in an attempt to prevent, inhibit or otherwise deter a party from reporting disclosures which are protected by law, such as
· co-operating with a criminal investigation or prosecution,
· reporting an offence to a law enforcement agency,
· making a protected disclosure under the Public Interest Disclosure Act
· 1998,
· making any disclosure required by law,
· making a disclosure relating to harassment of any kind and,
· making a disclosure relating to discrimination of any kind.
In particular the Regulatory Committee is concerned that NDAs may be used in an attempt to prevent a party from:
· reporting misconduct, or a serious breach of our regulatory requirements to the Law Society of Scotland, or making an equivalent report to any other body responsible for supervising or regulating the matters in question,
· making a complaint to the Scottish Legal Complaints Commission.
1.3. Purpose
The Guidance is published to assist solicitors in understanding their
professional obligations and to meet the standards of good professional and
ethical practice when dealing in any way with NDAs. Where we refer to
dealing, this includes: negotiating, drafting, advising on, or enforcing an NDA.
The Guidance notes some key issues, considerations and risks that solicitors may encounter when dealing with NDAs and highlights factors the solicitor should consider when advising the client and those that should be drawn to the client’s attention to ensure that the client is fully informed and understands the nature of the agreement which they are entering into, the associated risks, and the obligations of both the solicitor and client.
Solicitors are required to only act in matters where they are competent to do so. In that regard solicitors who deal with NDAs are encouraged to consider undertaking regular training to ensure that they keep up-to-date legislative and other developments that relate to NDAs.
Within the Guidance
“Must" refers to a binding obligation under statute, regulations, Rules, or the like.
"Should" refers to good practice: failure to comply may be taken into account in
disciplinary or other proceedings.
2. Non-Disclosure Agreements & Confidentiality Clause Guidance
2.1. This Guidance applies to the use of Non-Disclosure Agreements and is supported by information, including reason and background. This is set out in Part 1 and you should familiarise yourself with this prior to reading the Guidance below.
This Guidance is relevant to all NDAs regardless of the context in which the NDA arises including, but not limited to, employment matters, negligence claims and commercial transactions.
This Guidance applies whenever you are consulted or instructed with a view to drafting, advising on, negotiating, or enforcing an NDA, either as part of a stand-alone agreement or a confidentiality clause incorporated as part of a wider agreement.
This Guidance will help you understand your professional obligations and how to comply with them. We will have regard to it when exercising our regulatory functions.
This guidance should be read in conjunction with the Society’s Fundamental Principles of Client Care and the Practice Rules contained therein.
It is important to note that, subject to what is set out within this Guidance, the Guidance does not prohibit the use of NDAs.
2.2. You must ensure that you are competent to act with regards the NDA on behalf of your client. Practice Rule B1.10 provides that you should only act in matters where you are competent to do so.
If you use an NDA improperly or behave in a way that is in breach of your professional and regulatory obligations, you are at risk of regulatory / disciplinary action.
2.3. You should always consider if an NDA is necessary, having regard to the specific circumstances of each case.
2.4. Where a standardised (template) NDA is being used you should consider if it is necessary for the clauses to be revised. In particular, if it is necessary for these to be specifically tailored to the individual circumstances of the matter.
Template NDAs should be reviewed regularly to ensure that they are reflective of developments in law and guidance.
Care should be taken that inappropriate and unnecessary clauses are not included within NDAs.
Plain English should be used, making sure that the terms are clear and relevant to the issues.
2.5. You must not accept instructions, regarding an NDA, that may be considered as improper.
Acting on improper instructions would be a breach of Practice Rule B1.5.
For example, including clauses which you know to be unenforceable, fraudulent or which seek to prevent disclosures which are protected by law. In such circumstances, you should properly advise your client on the legal consequences of the proposed instructions, the scope or application of the law relevant to the circumstances and your professional obligations, with regards to the instructions given.
If your client seeks to provide an improper instruction you should explain that you are unable to accept it. It may be that after you have explained to your client that you are unable to accept an improper instruction that they amend their instructions accordingly and the difficulty is resolved. However, if your client seeks to insist on providing you with an improper instruction you should decline instructions and withdraw from acting.
2.6. All parties to an NDA should be given a reasonable time to consider the terms of an NDA. If you are representing a client who is party to an NDA, you should be given sufficient time to properly take instructions, advise your client and respond accordingly and you should also provide a reasonable amount of time for the other party to do likewise.
You should always consider if sufficient time has been given, and ‘push-back’ if you feel this is not the case.
Where negotiations take place direct (i.e. face to face, or verbally) and in real time, you should ensure that any negotiations that may be necessary regarding the terms of, or in connection to, an NDA are, as far as practicable conducted at a hour that is considered as reasonable for all parties, and these are not unduly prolonged. In considering what is reasonable, factors to take into account, for example, may include, pressing timelines, differing time-zones and the vulnerability of any party. In relation to vulnerability, you should have regards to B1.5 Vulnerable Clients Guidance.
2.7. Often disputes or grievances in the workplace may arise that involve two or more parties (i.e. the employer, an employee whose behaviour has given rise to the NDA and the employee alleging that behaviour). This may require either separate NDAs between the employees in dispute and the employer, or for more than one employee to be included in an agreement with provisions for confidentiality, for example, if they are personally accused of bullying and/or harassment.
Advising either employee in such a situation, whilst also advising their employer, would be a conflict of interest.
In general, you should only act for one party to an NDA. The exception to this would be where no dispute arises or might reasonably be expected to arise, that will or may give rise to an actual or potential conflict. This exception may apply, for example, in a commercial transaction where you act for more than one party.
A conflict of interest will be a breach of Practice Rule B1.7.1
When sending an NDA or document to an unrepresented party for signature, solicitors should comply with Practice Rule B2.1.7 by informing such unrepresented party that signature of the NDA or document will have legal consequences and they should seek independent advice before signature.
2.8. Where the NDA relates to employment matters, you must ensure that you have regard to the requirements under employment and other related applicable legislation , including those that require the employee being in receipt of independent advice.
2.9. You should not take unfair advantage of any person who is party to an NDA, whether that party is represented or not. For example, unfair advantage may include applying undue pressure to agree the terms of an NDA. This may include, again for example, using inappropriate tactics, such as oppressive or unrealistic time limits, or aggressive or improper persuasive behaviours.
You should not seek to exercise undue influence, putting an opposing party under duress, by relying on your position as a solicitor. This is particularly relevant where that other party is unrepresented. An example of this would be discouraging the unrepresented party from seeking independent legal advice which would be a breach of Practice Rule B2.1.7.
You should be aware that accepting instructions from a client who is under duress or accepting instructions to put an opposing party under duress, would be accepting improper instructions and would be a breach of Practice Rule B1.5 as referred to in paragraph 2.5. of this Guidance.
You should ensure that you are aware of the factors that may suggest that your client may be under duress, including economic duress, to sign the NDA. For example, this may include where there is, or has been, pressure or improper persuasion placed on your client, by another party, that compromises genuine consent to sign the NDA. Economic duress may include, again for example, where one party uses financial pressure to persuade your client to sign.
Where a party is under duress then, where they have signed the NDA, this may not be enforceable.
2.10. NDAs should not include or propose clauses that you know to be unenforceable or use warranties, indemnities, and claw back clauses in a way which is designed to, or has the effect of, improperly preventing, inhibiting, or discouraging in any way permitted and lawful reporting or disclosures being made, or any allegations or finding of harassment.
NDAs must not seek to prevent, impede, or deter a person from co-operating with a criminal investigation or prosecution. Such a clause may be unenforceable.
Any clause which attempts to prevent, or is intended to deter, a person from complaining to the Scottish Legal Complaints Commission or reporting potential misconduct or a breach of a solicitor’s regulatory requirements to The Law Society of Scotland, may be a breach of your regulatory obligations. See Rule B1 Guidance - Restricting Complaints.
2.11. When dealing with an NDA, with regards to disclosure (whistleblowing) you must have regards to, and be familiar with, the reporting requirements set out within all applicable legislation.
NDAs should not seek to prevent, impede, or deter the making of any disclosure whether this is a protected disclose required by law or otherwise.
2.12. If you are acting for the any party in an NDA and you have any concerns regarding the clauses of the NDA, for example if you consider these to be unethical, unenforceable or clauses that seek to restrict complaints or concerns being raised, then you should advise your client accordingly.