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Evidence of NDA misuse mounting as regulator plans action

By John Hyde >>

(17 October 2023)

Oversight regulators could bring forward reforms to end the misuse of non-disclosure agreements after finding multiple examples of bad practice. 

The Legal Services Board made a call for evidence about NDAs earlier this year amid concerns that lawyers drawing up these agreements were complicit in covering up unlawful activity such as discrimination, harassment or abuse.

The LSB had said it wanted to understand why some lawyers failed to adhere to professional ethical obligations when they are engaged to draft NDAs for powerful organisations or individuals.

A paper published ahead of the LSB board meeting today reveals that a call for evidence on the topic received more than 100 responses.

Respondents reported that NDAs had been used to conceal illegal acts such as sexual assault, fraud and tax evasion. Often they were agreed between employers and employees, where the person signing relied on the other side for financial compensation or a reference. This imbalance of power made individuals vulnerable when dealing with a party with influence and resources.

The LSB heard from individuals who reported that lawyers had lacked sensitivity and presented NDAs as a standard procedure.

‘Feeling like there was no other option’ was frequently cited as the reason for signing an NDA, despite subsequent regrets. Some respondents stated that the terms and effects of an NDA were often not explained and that justification for signing an NDA could be vague.

The LSB said it was most concerned that so few people understood about their legal rights regarding NDAs, particularly given that employees were supposed to have received independent advice.

Many respondents wanted regulators to consider whether the misuse of NDAs could include failing to ensure that people understood their legal options.

The LSB said the findings gave ‘cause for concern’ in the context of professional ethics and the rule of law.

‘There were accounts where individuals reported feeling pressured into signing agreements, where an imbalance of power led to a detrimental outcome for an individual and where individuals in vulnerable circumstances felt this was exploited to the benefit of the other party,’ said the LSB.

The oversight regulator said there was ‘strong rationale’ for scoping policy options for what it called a ‘strengthened and harmonised regulatory approach’. This course of action is set to be approved by the LSB board today.

(Courtesy: The Law Society Gazette)