UK Employment Law Coffee Break: AI, non-disclosure agreements and our HR Pensions Spotlight for October

AI in the workplace: Our international overview 

The workplace is experiencing a significant rise in the use of artificial intelligence (AI) by both employers and employees. Osborne Clarke has produced a flyer "Artificial Intelligence and the Future of Work" with some high-level details of the overarching legal position in respect of AI use in the workplace in a number of jurisdictions (the UK, Belgium, China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Spain and Sweden) which is available on request. This Insight explores some key takeaways, including common pitfalls and how to mitigate the risks in an HR context. 

You can read how risk managers can take advantage of the opportunities and manage the potential dangers of generative AI, including consideration of appropriate governance systems, operational and employee guidance, and contractual assurances to mitigate risk, in our article for Sentinel Magazine. 

SRA 'thematic review' provides reminder of the care needed when drafting and negotiating non-disclosure provisions 

In recent years, the spotlight has shone firmly on the use of non-disclosure agreements (NDA) in employment documentation. Such provisions are often included to restrict an employee disclosing sensitive, commercial or confidential information – the #metoo campaign highlighted particular concerns around the use of such provisions to prevent employees reporting allegations of sexual harassment and other unacceptable conduct (read our earlier Insight). 

In 2018, the Solicitors Regulation Authority (SRA) issued a warning notice (updated in 2020) addressing the conduct expected of solicitors when advising on NDAs. It has now published the results of a "thematic review" to understand how NDAs are used in an employment context and measures taken to comply with the warning ensuring such provisions "do not stray into inappropriate areas". 

The term NDA potentially covers a wide-range of provisions which directly or indirectly seek to keep certain information confidential or limit disclosures, including confidentiality clauses, non-derogatory clauses, warranties, indemnities and clawbacks. 

Warning on use of NDAs 

The warning recognises the legitimate place NDAs have in agreements to protect commercial interests, reputation and confidentiality. It sets out that the SRA would consider that an NDA was improperly used 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 regulatory requirements; and/or
• making a protected disclosure under the Public Interest Disclosure Act 1998. 

The SRA would also consider an NDA improper if it is used to:

• influence the substance of such a report, disclosure or co-operation;
• prevent any disclosure required by law; and/or
• 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 warning also makes clear that solicitors should not take unfair advantage of an opposing party, whether or not they are represented. This includes, for example, taking advantage of an opposing party's lack of legal knowledge or limited access to legal representation or advice to agree the terms of the NDA (for example proposing or including a clause known to be unenforceable or threatening to litigate that clause or imposing oppressive and artificial time limits on a vulnerable opposing party). 

Where an opposing party is "vulnerable or unrepresented", obligations to ensure there is no abuse of position or unfair advantage are heightened. 

Findings from the review 

While in general the picture was one of compliance and there was "no direct evidence of solicitors drafting NDAs with the deliberate intention or preventing reporting of inappropriate behaviour", the review identifies a number of common trends and practices which might inadvertently contribute to this happening, including:

• Over-reliance on standard templates: firms frequently display an over-reliance on largely unamended NDA templates leading to "a level of complacency about the risks"; emphasising the importance of reflecting the individual circumstances of each case. The SRA review refers to guidance from Acas which "as a matter of good practice" advises that "confidentiality clauses only be used when necessary" and not "as a matter of course". Whether an NDA is appropriate in all the circumstances may depend, for example, on the profile of the parties, reputational consequences and the outcome desired by employers as well as employees.
   
• Drafting: overall there is a "fundamental imbalance of power in how NDAs are drafted" with employers generally dictating the terms of any agreement "sometimes before or without an employee engaging legal advice of their own". Aside from the prevalent use of standard templates, the review highlights instances of agreements expressly omitting permitted disclosures from draft and final documents, restrictive non-derogatory clauses and inappropriate clawback/penalty clauses.
   
• Short deadlines: employers tend to set short time limits, typically seven days for an employee to sign an agreement and there could be a "general sense of urgency permeating a negotiation process" which can further restrict the opportunity for an employee to obtain the required support and advice to make informed decisions.
   
• Legal support: there is a "significant difference" in the legal support available to employer and employees with contributing factors including employees unable/unwilling to pay for appropriate legal advice and with discretionary levels of financial assistance provided by employers often minimal – the review notes that the amount offered (usually £250 to £750) was "only likely to cover limited legal support; most likely just covering signing off of an agreement or considering minimal amendments".
   
• Reporting concerns: the SRA states that less than 10% of firms surveyed reported having raised concerns with another firm "about an unethical or unenforceable clause in an agreement with an NDA". 

Importantly the review re-emphasises the need for solicitors to "acknowledge the ethical considerations that should be considered when advising clients on NDAs (regardless of which party they represent)". It points to the fact that the circumstances behind many NDAs can often mean clients and third parties involved are vulnerable, requiring consideration of approaches to working with and supporting people in such circumstances. 

Next steps 

The review provides a timely reminder for those advising on NDAs (including external legal advisers and in-house counsel) to ensure that the warning is carefully considered at all times and NDAs are not simply viewed "as low risk and fairly straightforward activity". It reflects the SRA's concerns that there can be a "focus far more on [the] nature and extent of any possible financial settlement rather than the specific clauses within any agreement" and that solicitors must consider any risks to the proper administration of justice and public trust in the provision of legal services; for example, whether any unenforceable or improper term risks taking unfair advantage of a client or other party. To this end the SRA is calling for more awareness including training, policies and controls around NDAs to maintain compliance with the warning. 

Recognising that templates are commonplace and can support compliance, practical steps suggested by the SRA include:

• reviewing provisions regularly and comparing them to the warning notice to identify any issues and record any updates;
• checking whether a clause could amount to a breach because it gives "the impression" that certain disclosures cannot be made;
• ensuring terms are clear and relevant to the issues and claims likely to arise;
• signposting examples of good practice or guidance in draft agreements to promote high ethical standards;
• tailoring every agreement to the circumstances; and
• ensuring awareness of the warning notice and best practice from the EHRC or Acas Code of Practice. 

Employers should anticipate renewed scrutiny of settlement agreement and other NDA provisions. We may also see claimants' legal advisers potentially requesting a greater discretionary contribution to legal fees depending on the circumstances of the dispute. The SRA notes that solicitors acting for employees "need to be explicit with clients about the extent of the advice they can provide where the budget is limited, and be satisfied that they are able to carry out their role to a competent standard in the time provided". 

The review also highlights the need for greater reporting to the SRA of unacceptable NDAs or behaviours where clauses are considered to fall foul of the applicable requirements. 

The SRA now plans to review the current warning and reinforce those areas where gaps in knowledge have been identified, including through webinars and publications aimed at the legal profession, alongside a co-ordinated programme of public education using the Legal Choices website and other media to ensure employee and employer clients are better informed about their rights, the enforceability of key clauses and the obligations of the legal profession advising them. 

The government has previously indicated that it would introduce legislation around the use of NDAs in employment documentation following a consultation in 2019; to date, there has been no further progress on this. 

The Legal Services Board (the independent body responsible for overseeing the regulation of legal services in England and Wales, including the work of the SRA) has recently published a call for evidence on how to address the misuse of NDAs by lawyers, so this is an area where we may see further developments.

Death in service: when things go wrong 

As confirmed by our Ageing Workforce report, lump sum death in service cover is a popular benefit and valued more highly as employees get older. Many employers have a separate death in service scheme in addition to their pension offering. Employers with occupational pension schemes might continue to offer death in service cover through their pension scheme. But should it need to be called upon, will the death in service deliver as expected? We look at some scenarios where things have not gone as planned. 

The scheme with no deed and rules 

Was the scheme properly established under trust and were the formal deeds lost or was it not properly established at all? If there was no deed, it won't have been registered for tax benefits because HMRC (or the Inland Revenue before 2006) would have required a deed. Also, you won't know who the trustees are with the power to distribute the benefits. If there are no rules, you won't know who the beneficiaries could be. 

The unregistered scheme

Some schemes are supposed to be unregistered for tax purposes, but they must meet particular conditions. Excepted Group Life Trusts fall into this category. But if the scheme was meant to be registered, failing to register it his might mean that the scheme will be treated as an employer-financed retirement benefits scheme (EFRBS) for tax purposes, with the risk that the benefits might count as employment income and/or be liable for other taxes, instead of being tax free. 

The scheme with inadequate cover 

Here, a lump sum provided by the underlying insurance policy did not match the sum promised by the pension scheme rules. There was a shortfall which the pension scheme (and ultimately the employer) needed to fund. 

The employer with no scheme

Corporate groups restructure or change by acquisition or disposal. Group companies that promise a death in service benefit need to participate in a death in service scheme. If they do not have their own scheme and it is intended that they participate in a group scheme, they usually need to enter into a formal deed of participation to join the scheme, in addition to being included in the group's death in service insurance policy. 

If an employee dies when there is no scheme, the insured benefits payable may be subject to tax. 

The trustees who disappeared 

In many cases, the employer is also the trustee of its own death in service scheme. But some schemes were established with individual trustees drawn from the board or HR departments. In one case individual trustees left the employer a long time before, but had not been formally removed or replaced, meaning that subsequent decisions had been taken by the wrong people. 

The employer who disappeared 

Every death in service scheme needs a current employer as the main, or principal, employer. The principal employer will generally have the power to appoint and remove trustees, amend the scheme's rules and terminate the scheme. 

A scheme established by a company which either no longer exists or has been disposed of presents a significant problem. Is a formal substitution of the employer still possible? Has the scheme already terminated? 

Beware the Expression of Wish! 

Great to have and employees should be encouraged to review them regularly, but they come with a warning. Beware out of date expressions of wish and also following them without further enquiry, which can lead to dispute. This is a particular risk where family circumstances are complex. 

Trustees of death in service schemes must exercise discretion and do so in the right way, by doing a fact find, taking into account all relevant factors, disregarding irrelevant ones and taking a reasonable decision in the circumstances. An expression of wish is not binding and is one factor, among others, to be taken into account. 

The good news is that many of the above issues can be dealt with or mitigated, provided they are identified early. Now is a good time to review death in service arrangements to check that they are in order and do not fall foul of any of the unexpected circumstances above. 

Please get in touch with your usual Osborne Clarke contact or pensions partner, Claire Rankin, for details on how we can help.