SRA tells employers what they cannot ask in-house lawyers to do

Oliver: Unique challenges of working in-house

Draft guidance for employers of in-house solicitors, which aims to establish a mutual understanding of what lawyers can and cannot do, has been published by the Solicitors Regulation Authority (SRA).

Among other things, it says employers should not put in place personal objectives, performance rewards and incentives that create an “inherent risk of conflict” between the regulatory and legal objectives of the role.

An example of this would be a bonus focused solely on completing a deal rather than completing it “in a way that aligns to your agreed legal and regulatory risk appetite”.

The regulator has issued three other pieces of draft guidance to support in-house solicitors, covering identifying the client when working in-house, handling internal investigations, and reporting wrongdoing by an employer.

The SRA is seeking views on the drafts before it formally adopts them.

They are a response to an SRA review which found last year that in-house lawyers were generally able to withstand pressures on their independence but a minority reported demands to act unethically.

A group of senior practitioners subsequently warned that the SRA did not appear to recognise the “severity of the risks” facing in-house lawyers indicated by the research.

Speaking at last week’s Legal Services Board conference, Richard Moorhead, professor of law and professional ethics at Exeter University, argued that “the SRA has though failed to take the issue of independence seriously enough – they have been warned about it for many years”.

He said: “I know that some in the in-house community are crying out for better guidance on things like reporting up… rather than simply being told, well you’re a professional, you can sort that out for yourself when we don’t regulate your organisations.”

The SRA said it developed the guidance in conjunction with its virtual in-house solicitor reference group. It was published on Friday ahead of its second annual in-house solicitors conference later this week.

The draft guidance for employers stresses that in-house lawyers “should be empowered and supported to raise concerns”, and not disciplined or punished for doing so.

Employers should “provide systems and processes to allow solicitors to meet their obligations to provide independent and impartial advice, avoid conflicts of interest and act in the best interest of their client”.

This included allowing the legal function to be able to participate in leadership and operational roles/decisions across the business, and helping the board and executive to set their legal and regulatory risk appetite and deliver against this.

“However, solicitors should not be penalised for declining to participate in an activity or role where there a real likelihood of conflict of roles or of infringing regulatory obligations would arise from this participation. For example, acting as the director of a subsidiary or leading a sales initiative.”

In-house lawyers are told that, where wrongdoing persists despite their reporting concerns, “you should carefully consider whether you can meet your regulatory obligations and continue working for your organisation”.

Separately to reporting internally concerns about wrongdoing, in-house lawyers may have to report externally too, even if they have left the organisation.

Where there is no legal requirement to do so, lawyers would need to make “a careful balancing judgment” in deciding whether to do so, the SRA says.

It would be harder to justify a decision not to make a report where the wrongdoing involves serious criminal offences or there is a risk of serious harm or loss – for example, a toy manufactured in beach of legislation that poses a danger to children or an investment scheme devised to be tax efficient that appears to carry a significant risk of HM Revenue and Customs pursuing customers for underpaid tax.

In the same category is wrongdoing that has a negative impact on the rule of law or the administration of justice, such as actions likely to result in a miscarriage of justice.

The SRA says it is more likely that a decision not to make a report will be justified where there are “serious counterbalancing considerations”.

Examples include risks to the personal safety of the lawyer or others by making a report, having “a genuine belief that the issue has been or will be reported or addressed to the extent that no report is required”, or if the employer “is likely to have a valid claim against you for breaching your duties of confidentiality or legal professional privilege”.

Juliet Oliver, the SRA’s general counsel, said: “As well as ongoing feedback from the those working in the sector, recent high-profile cases such as the Post Office case have really shone a light on the unique challenges and issues which in-house solicitors can encounter.

“We have been working closely with the in-house community over the past year to consider what support we can offer to address some of these challenges.

“We believe these resources will provide valuable support and guidance to in-house solicitors across a range of important issues. But to make sure this is the case, we want to take this opportunity to invite those working in the sector to input.”

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