The Risks of Lawyers Signing Clients’ Nondisclosure Agreements

There are various reasons that clients may ask lawyers to sign NDAs. For one, clients’ vendors and business partners often sign NDAs as a matter of course, so many clients simply do not understand why lawyers should be different. These clients may be unaware that lawyers are already obligated by their duty of confidentiality to protect information related to the representation, or that their communications with lawyers seeking or receiving legal advice are subject to the attorney-client privilege. Other clients may be involved in an emerging or risk-laden industry, such as cannabis or gambling, and are greatly concerned with keeping their activities and information strictly confidential. Clients with potentially valuable intellectual property may also request NDAs, fearing that their lawyers will use the knowledge of that intellectual property for personal gain. Some clients may also push for a lawyer to sign an NDA because they feel that it provides clear remedies should the lawyer somehow harm them by disclosing confidential information.

Given these concerns and the frequency with which lawyers advise clients to protect their confidential information with NDAs, it is certainly understandable that those same clients may think that it is equally prudent to insist on a signed NDA from their lawyers. The difference between lawyers and other business professionals, of course, is that in most business dealings, a client’s counterpart does not owe the client any particular duty and in fact can often exploit whatever information the client reveals. Lawyers, on the other hand, are already bound to protect client information under their broad ethical duty of confidentiality (which applies to current, former, and prospective clients) and the attorney-client privilege. Accordingly, it is usually both unnecessary and redundant for clients to require lawyers to sign NDAs.

What’s more, it could raise ethical problems for lawyers. For instance, NDA language concerning confidential information may be overly restrictive and could seemingly prevent lawyers from exercising their discretion (or, in some states, the proscribed mandate) to reveal confidential information concerning a client’s criminal or fraudulent conduct. NDA language can also potentially limit lawyers’ ability to share information with other lawyers in their firms.

On the flip side, some NDAs contain a very narrow definition of “confidential information” or provide specific circumstances permitting disclosure of information that would not otherwise be permissible under a lawyer’s duty of confidentiality. Such language could confuse clients by appearing to contractually limit the information that is subject to a lawyer’s duty of confidentiality or could perhaps even raise an argument that the client gave informed consent to the disclosure of information that would otherwise be protected by the Model Rules of Professional Conduct.

This article explores the risks that lawyers must consider when clients request that they sign an NDA. It discusses lawyers’ duty of confidentiality, the attorney-client privilege, and file retention requirements and how each is affected by signing an NDA with a client. The article concludes with recommendations for lawyers confronting these circumstances.

Conflict between an NDA and Lawyers’ Duty of Confidentiality

Current clients. Lawyers’ ethical duties prohibit them from disclosing confidential information shared by a client—an obligation that is “essential to the attorney-client relationship.” Lawyers’ duty to maintain client confidences is a fundamental agency law principle that has long been embodied in legal ethics rules and that is specifically governed by Model Rule 1.6. Model Rule 1.6(a) states that a lawyer shall not reveal information relating to a client’s representation unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted under one of the exceptions set forth in Model Rule 1.6(b).

The Model Rule 1.6(b) exceptions permit a lawyer to reveal information relating to a client’s representation in certain circumstances, including to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another, to mitigate or rectify the injury from a crime or fraud that the client already committed, or to establish a claim or defense on the lawyer’s own behalf in a controversy between the lawyer and the client. These exceptions are important both to lawyers’ ability to prevent (or avoid aiding or abetting) clients’ crimes or frauds and to lawyers’ ability to protect themselves from liability for clients’ misdeeds.

While a lawyer’s duty of confidentiality broadly protects client information, some NDAs contain confidentiality language that is even more restrictive. For example, some NDAs broadly define “confidential information” with limited or no exceptions, and some NDAs include extremely strict limits on how such information may be shared. Because Model Rule 1.6(b) outlines several situations in which lawyers have discretion to reveal confidential information, conflicting language in a signed NDA could arguably limit a lawyer’s ability to exercise such discretion. Consider, for example, an NDA that prohibits a lawyer from sharing confidential client information under “any circumstances.” What, then, is a lawyer to do when they reasonably believe that they must reveal information relating to a representation to prevent a client’s crime or fraud? A lawyer in such a scenario would be faced with two unappealing choices: (1) violate a signed contract (and face the contract’s prescribed penalties and relief), or (2) allow a client to perpetrate a potential crime or fraud, resulting in harm to another client or a third party and perhaps exposing the lawyer to an aiding and abetting claim.

Additional ethics rules go beyond giving lawyers mere discretion and require lawyers to disclose certain client confidences. For instance, Model Rule 3.3 requires a lawyer to reveal confidential information to correct false testimony offered by the lawyer, the client, or a witness called by the lawyer, or to disclose that a person intends to engage in criminal or fraudulent conduct related to an adjudicative proceeding. Model Rule 4.1(b) requires a lawyer to disclose information when necessary to avoid assisting a criminal or fraudulent act by the client unless Model Rule 1.6 would prohibit that disclosure. In such cases, strict NDA language prohibiting the disclosure of confidential information under “any circumstances” would conflict with a lawyer’s mandatory disclosure duties under the Model Rules and applicable state equivalents. Should a lawyer abide by the terms of the NDA and risk professional discipline, or should they instead intentionally violate the terms of the NDA and potentially subject themself to the penalties specified in the agreement?

Also consider the other side of the coin, where NDAs use limiting language and multiple exceptions to narrowly define “confidential information.” For instance, certain NDAs specifically carve out a variety of information as not confidential, including information generally known or contained in the public domain, information that is already in possession of the relevant party, or information that has been disclosed to the relevant party by a third party. Such exceptions limit duties of confidentiality under an NDA to a narrower subset of information than that which is otherwise subject to a lawyer’s duties of confidentiality under the Model Rules (which broadly apply to any information “relating to the representation of a client”). As a practical matter, this sort of NDA would almost certainly be a mere addition to a lawyer’s existing duty of confidentiality, rather than some sort of waiver or limiting factor, but introducing conflicting contractual language into a lawyer’s existing duties may needlessly confuse the situation.

Additionally, how should lawyers who are subject to NDAs handle intrafirm disclosures of confidential information? Generally, lawyers are free to discuss confidential information with other lawyers in their firms without client consent. If an NDA imposes disclosure or consent requirements for lawyers to disclose certain information to “any” third party, a strict interpretation of the NDA arguably could be read to include firm lawyers, which would make everyday practice within a law firm complicated and burdensome.

Prospective clients. Lawyers should be wary of signing NDAs when asked to do so not only by current clients but also by prospective clients. In addition to the concerns previously discussed, lawyers already owe a duty of confidentiality to prospective clients under Model Rule 1.18, which provides that a lawyer who has learned information from a prospective client cannot use or reveal that information and cannot represent a client with interests materially adverse to those of a prospective client in the same or substantially related matter.

There are only two exceptions to Model Rule 1.18 that permit representation once a lawyer learns such information and triggers a conflict. The first exception applies if the lawyer obtains informed written consent from both the prospective client and the affected current client. The second exception occurs when the lawyer who receives the information from the prospective client takes “reasonable measures to avoid exposure to more disqualifying information than was reasonably necessary to determine whether to represent the prospective client,” and the disqualified lawyer is timely screened from participation in the matter.

A lawyer who signs an NDA for a potential client would arguably not be able to avail themself of this “screening from participation” exception. By executing the NDA, the lawyer would not have taken “reasonable measures” to avoid exposure to disqualifying information; in fact, the lawyer would arguably have invited such disclosure. If a law firm did later try to take advantage of the exception by screening any lawyer who received the confidential information, the prospective client would almost certainly immediately seek to disqualify the lawyer or firm (as well as pursue any other relief it could argue is due under the terms of the NDA, or otherwise). Accordingly, the lawyer would be barred from taking on matters adverse to the prospective client, which could potentially bruise existing client relationships and limit business opportunities.

Conflict between an NDA and the Attorney-Client Privilege

In addition to being protected by ethics rules concerning confidentiality, information that a client discloses to its lawyer in confidence for the purpose of obtaining legal assistance is protected by the attorney-client privilege. This long-standing and fundamental rule preserves the confidentiality of communications between a lawyer and their client and binds a lawyer to preserve and protect confidential information disclosed to the lawyer by a client, subject to some requirements and exceptions. Because the privilege attaches to communications, an otherwise privileged exchange between a client and a lawyer containing information that could be discovered by other means remains shielded from discovery. The privilege extends after the attorney-client relationships ends and even survives the client’s death.

Much like a lawyer’s duty of confidentiality, some authors have posited, the attorney-client privilege can also be affected by certain NDA language. For instance, NDA language might be phrased in a way that leads a counterparty to argue that a client consented to disclosure of certain confidential information because it was not included in (or was excepted from) the definition of “confidential information” in the NDA.

Accordingly, would a lawyer who signs an NDA with a limited definition of “confidential information,” or that contains specific provisions regarding the protection and disclosure of information, be contracting away, waiving, or modifying any rights under the privilege? Such an outcome seems unlikely because the privilege belongs to the client and because a broad provision concerning the disclosure of information is unlikely to trump the protections of the privilege. That said, given the strong privilege protections already in place between lawyers and clients, it seems unnecessary for a lawyer to risk muddying the privilege waters—however remote the likelihood of consequences—by signing a conflicting NDA.

Impact of an NDA on File Retention

Another issue with NDAs is that certain NDA language could arguably affect a lawyer’s duties concerning file retention. While lawyers are generally obligated to deliver files to clients upon request, certain ethics rules require lawyers to maintain specific records for a certain time, and multiple states provide a minimum client file retention period by statute, rule, or ethics opinion. There is also authority in some jurisdictions supporting a law firm’s discretion to dispose of files without notice to the client. Some NDAs, however, permit disclosing parties to dictate when and how counterparties must return or even destroy confidential information. Accordingly, where a client requests the return or destruction of files pursuant to a signed NDA, a conflict may arise between a lawyer’s rights or duties under applicable ethics authorities and the language of the NDA. For instance, if a state statute requires a lawyer to maintain a client file for seven years but a signed NDA requires a lawyer to return or destroy parts of that file within a shorter time frame (or perhaps at the client’s discretion), a conflict arises between the lawyer’s contractual duty and applicable statutory requirements.

This type of issue arose in a case from the Northern District of California, where the court found that the terms of a protective order requiring the return of documents after the end of an action trumped the lawyers’ recordkeeping obligations under the applicable state ethics rule. In that case, a protective order against the plaintiff’s counsel provided that counsel for both parties had to assemble and return all confidential information to each other within 30 days of the disposition of the action.The court rejected the plaintiff’s lawyers’ argument that California Rule of Professional Conduct 4-100(B)(3) required them to retain a complete record of all client “funds and other properties” coming into the attorney’s possession for at least five years after the conclusion of a litigation, in contravention of the protective order. The court noted that such a result would “hamper the private resolution of discovery disputes” and would dissuade parties from stipulating to protective orders. While this case is perhaps not a direct corollary, there is at least some precedent for a contractual agreement concerning records and files to supersede ethics rules.

Recommendations for Lawyers Asked to Sign an NDA

The prospect of signing an NDA can cause heartburn for lawyers. Certain NDA language can create a potential conflict and confusion between the NDA and a lawyer’s ethical duties. It can broaden or perhaps narrow a lawyer’s confidentiality parameters and can affect a lawyer’s discretion (or, at times, mandate) to disclose certain information. A lawyer’s right to confidential intrafirm communication and file retention duties may also be impacted. Put simply, lawyers do “not want to find themselves in a situation where they are bound by contractual obligations to their client that potentially alter the important existing ethical obligations they already have under the law.”

With that understanding, what should a lawyer do when a client asks them to sign an NDA? In short, avoid it wherever possible. As one author put it, “[m]ost lawyers will emphatically refuse to sign NDAs with their clients.” After all, it is “highly unlikely that a non-disclosure agreement is necessary for [the client’s] working relationship with an attorney,” as the rules of professional conduct automatically hold lawyers to a higher level of duty and care. In most cases, an NDA with a lawyer does not give a client anything they do not already have—but it can arguably alter the lawyer’s ethical obligations to the client.

Clients may initially protest when a lawyer refuses to sign an NDA, particularly when the lawyer has previously urged the client to obtain NDAs from other parties. In this instance, lawyers have a few arguments that may help a client understand their refusal. First, it is simply redundant and unnecessary. Lawyers can explain that they are already subject to a broad ethical duty of confidentiality, and that client communications made for the purpose of seeking legal advice are generally subject to the attorney-client privilege. By analogy, a client asking a lawyer to sign an NDA is like a patient asking a doctor not to tell anyone about the patient’s health conditions discussed in an appointment, inasmuch as doctors are already bound by ethics standards and laws to uphold medical confidentiality.

Second, lawyers can point out that NDA language could potentially conflict with their duties under the ethics rules, and that such a conflict could needlessly interfere with their ability to best represent the client. Lawyers can further explain that they are held to a higher standard than an NDA might enforce, and that a narrowly drafted NDA may provide lesser protection than the lawyer’s own duties if the NDA could be read to alter or limit the ethics rule concerning confidentiality.

Despite the risks, some lawyers are still willing to sign NDAs, particularly when the NDAs do not hinder their duties or ability to effectively represent the client. If a lawyer feels compelled to sign an NDA for a client, they should carefully scrutinize the NDA’s language. Where possible, adding language that limits the NDA could moderate the associated risks. For instance, a savings clause could be added, stating that the obligations under the NDA are subject and subordinate to all applicable rules of professional conduct, as well as any rights and obligations set forth by the attorney-client privilege. It should also be noted that, even if a lawyer were to sign an NDA without the addition of a savings clause, the likelihood of a conflict between the NDA and the lawyer’s own ethical and privilege obligations is probably slim. The New York State Bar Association has observed that, “as a practical matter, because the definition of confidential information in Rule 1.6 is so broad, most contractual confidentiality provisions are not likely to exceed the scope of a New York lawyer’s confidentiality obligations under the Rules.”

In addition, even if the plain language of an NDA would arguably prohibit a lawyer from revealing any client confidential information otherwise permitted by Model Rule 1.6(b), there are situations where common sense must prevail. If a lawyer is aware that a client has plans to commit serious financial fraud, a lawyer can surely step in and break confidence to report the conduct, even if such an act “violates” the terms of the NDA. A lawyer should be able to sleep soundly knowing that a court or jury is unlikely to favor the terms of an NDA over a choice to prevent the commission of a crime.

Finally, a lawyer may also be able to make a colorable argument that the NDA is automatically subordinate or subject to any applicable ethics rules, or perhaps even that the NDA is unenforceable as against public policy. Relying on that outcome, however, is not without risk. A lawyer’s safest choice—and one that can often be accomplished with a clear explanation that avoids bruising client relationships—is to avoid signing an NDA altogether.