A warning to solicitors and legal HR – when settlement agreements go too far

The question of whether it is ever acceptable for individuals to be “bought off” and “paid for their silence” has, understandably, come under the microscope. The extent of the allegations against Weinstein, for example, has highlighted the potential for NDAs to be used to hide a lengthy and ongoing course of misconduct. 

In one high-profile example recently discussed before the Parliamentary Equalities Committee, Weinstein’s former assistant, Zelda Perkins, raised sexual harassment complaints and entered into a settlement agreement with one of Weinstein’s companies, Miramax, back in 1999. That agreement not only required her to keep the agreement and her allegations confidential, but went further by requiring her to notify Miramax’s lawyer “before making any disclosure” if “any criminal legal process” involving Harvey Weinstein or Miramax required her to give evidence. Moreover, in the event her evidence was required, she was required to “use all reasonable endeavours to limit the scope of the disclosure as far as possible”. Controversially, Perkins was not even allowed to keep a copy of the agreement.

There has been significant press coverage and criticism of the role that lawyers can play in preventing allegations being reported to the appropriate authorities. The Solicitors Regulation Authority (“SRA”) has now made its position clear. In a “warning notice” issued on 12 March 2018, the SRA says that, while NDAs can be legitimate, they must not prevent anyone from notifying the SRA, or other regulators or law enforcement agencies, of conduct which might otherwise be reportable. The SRA also warns that NDAs should not be used “as a means of improperly threatening litigation or other adverse consequences, or otherwise exerting inappropriate influence over people not to make disclosures which are protected by statute, or reportable to regulators or law enforcement agencies”.

The legal profession should heed this warning, as the SRA’s notice and accompanying guidance will be taken into account by the SRA when deciding whether to take disciplinary action against a solicitor. It is relevant to everyone regulated by the SRA, and in particular:

• managers and employees of law firms
• those responsible for managing human resources and complaints in law firms
• practitioners advising clients on the use of NDAs.

Legal HR departments and law-firm risk and compliance teams should pay close attention, particularly to the third bullet point. The SRA’s notice does not just apply to the cover-up of misconduct within law firms (which are regulated by the SRA), but also to all solicitors – whether in private practice or in-house – advising clients in any other sphere on the use of NDAs. 

The SRA’s warning states that “inappropriate use of NDAs, failure to report actual or suspected misconduct, or other wrongdoing or criminal conduct, by you or, when acting on behalf of a client, improperly proposing, or exerting inappropriate influence on a third party to enter into an NDA either in an inappropriate manner or with inappropriate content; or failure to report wrongdoing that is subject to an NDA may put you in breach of one or more of the SRA Principles 2011”. 

In focusing on doing the best possible job for our clients or employer, it is vital that solicitors do not forget that we are regulated professionals who are required, at all times, to act with integrity and uphold the rule of law. Specific outcomes we are required to achieve include not taking unfair advantage of third parties.

The SRA’s note sets out some examples of what it considers to be improper use of an NDA.  In particular, it would be inappropriate if a regulated individual sought to:

• use an NDA as a means of preventing, or seeking to impede or 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
  • reporting an offence to a law enforcement agency
  • co-operating with a criminal investigation or prosecution;
• use an NDA to influence the substance of such a report, disclosure or co-operation
• use an NDA as a means of improperly threatening litigation against, or otherwise seeking improperly to influence, an individual in order to prevent or deter or influence a proper disclosure
• prevent someone who has entered into an NDA from keeping or receiving a copy.

NDAs or other settlement terms must not stipulate, and the person expected to agree the NDA must not be given the impression, that reporting or disclosure as set out above is prohibited. The SRA says that it may be appropriate for the NDA itself to be clear about what disclosures are permitted – those responsible for the drafting of settlement agreements or other NDAs should take a careful look at their precedent documents with this in mind.

Of course, individuals signing settlement agreements must receive their own independent legal advice, so they should also be getting advice about their right to make disclosures. It is also important to remember that this can cut both ways – either party may have an obligation to make a report and should be free to do so.

What if you know of some old settlement agreements or other NDAs lurking in the archives which went too far? The SRA is clear that if you are a regulated individual and you find, or have grounds to believe, that you or a member of your firm has or may have committed a serious breach of the SRA’s requirements, it expects you to report such findings or concerns to it.

Practitioners who propose or use inappropriate NDAs are at risk of disciplinary action. They may also be at risk if they use improper threats of litigation, or improperly influence a party by reference to other adverse consequences of making such report or disclosure. This would, for example, include any threat to bring defamation proceedings where such a claim is “known to be unsustainable”. The SRA emphasises that, where an employee is not represented, professional obligations are heightened, so as to prevent any abuse of position or unfair advantage.

The SRA’s warning notice is available here.