The Solicitors Regulation Authority (SRA) recently published a final version of its guidance for in-house solicitors. Expected for a long time, the guidance is intended to help in-house legal teams balance their regulatory duties and ethical expectations with the commercial reality of life in-house. It is helpful in many ways, but does it add up to the support that the in-house community needs?
More than 34,000 solicitors are now working in-house across all types of industry. The growth of the in-house community has been so pronounced in recent years that in-house solicitors now make up more than 25% of the profession.
Until relatively recently, the in-house community received little attention from our regulator, the SRA. However, with increased scale comes increased scrutiny. Recent scandals, for example at the Post Office, have also thrust the ethical role of in-house lawyers into the spotlight.
In 2023, the SRA published a review of ethics and in-house solicitors, prompting a group of GCs to sign and publish a letter openly criticising the SRA's generally positive conclusions, arguing that they understated the scale of the problem, that coming under pressure to compromise regulatory duties was a common (not a minority) issue, that in-house lawyers were regularly faced with the option of conforming or resigning and that regulatory support behind in-house solicitors was lacking.
The SRA has now answered the call for more regulatory guidance addressing the unique position of in-house solicitors. Their guidance is helpful in many ways, but arguably doesn't always fully reflect the reality of life as an in-houser. While it recognises the very challenging situation that in-house solicitors can sometimes find themselves in, the potential solutions make for sobering reading in places.
This is a summary of the guidance, which comes in multiple parts (not all of which are covered here), and gives some brief thoughts on its implications. The full guidance is available here.
Guidance for employers on a solicitor's professional obligations
This section of the guidance aims to raise awareness by helping organisations understand the regulatory duties and standards required of their in-house solicitors. It emphasises that all solicitors, whether working in-house or in private practice, must adhere to the SRA Principles. These require all solicitors to act:
- in a way that upholds the rule of law and the proper administration of justice
- in a way that upholds public trust and confidence in the solicitors' profession
- with independence
- with honesty
- with integrity
- in a way that encourages equality, diversity and inclusion
- in the best interests of each client.
A key message from the guidance is that those SRA Principles aimed at safeguarding the wider public interest must be prioritised over the interests of the client. This means that the SRA expect that in-house solicitors may, at times, have to refuse to act and/or instruct their teams to refuse to act – though the SRA does acknowledge this will likely be difficult and challenging to do in practice. This is illustrative of the SRA's wider position that comes across in the guidance that in-house solicitors have just as much responsibility for upholding the rule of law and maintaining public trust and confidence in the profession as our counterparts in private practice.
There are some helpful sections for in-house solicitors in this document, including:
- a recognition of the need for employers to engage proactively with their in-house solicitors in order to understand the obligations to which they are subject, and to give them confidence to feel able to discuss issues and raise concerns where necessary, as well as fostering a culture of speaking up and calling out wrongdoing;
- in-house solicitors' needs for appropriate support and resources to maintain their professional knowledge and skills;
- a recognition of the cost pressure that in-house solicitors can be put under, which may compromise their ability to provide a competent and ethical legal service to the employer;
- a need for appropriate levels of access to organisation decision makers and information to allow in-house solicitors to advise on an informed basis.
However, given that the regulatory obligations fall on the individual solicitor and not, in most cases, the employer too, it's doubtful that all organisations will take this guidance on board. The SRA has produced a shorter "key points" document for boards (and this is helpful) but many of us will still find that the organisation expects the in-house legal team to take responsibility for meeting their regulatory duties.
Identifying your client when working in-house
This section of the guidance emphasises that it's essential to know who your client is, and states that "your client will usually be your employer" and that this usually means what it terms "the governing body" of the employer.
In real life, of course, the situation is not always so clear cut. For many in-house solicitors operating within complex group structures, the idea that they are mainly there to advise the main board of the parent company is likely unrealistic. The final guidance now at least acknowledges the existence of group structures (the earlier draft missed this), but does not say much more in terms of practical guidance.
In the final guidance, the SRA has removed earlier suggestions that in-house teams adopt a formal "who is my client" policy and a practice of checking that delegated authority from the board is in place before taking any instructions. This is far more practical and realistic – it is not our experience that many in-house solicitors check that delegated authority is in place before responding to requests for help. However, the guidance still strongly promotes the idea of setting up formal protocols and systems for instructing the in-house legal team and suggests that "terms of engagement" could be used between the in-house solicitor and client. This is doubtlessly valuable in establishing proper "rules of engagement" (as well as supporting possible claims for legal professional privilege); however, query how practicable this is for many in-house solicitors who regularly find themselves advising multiple group companies or businesses across multiple jurisdictions, or being doorstepped for advice by an internal client in a corridor or via WhatsApp.
The guidance emphasises the need for in-house solicitors to be mindful of the risk of conflicts of interest and to avoid acting on matters where there is a conflict or a significant risk of one arising. The guidance also highlights the issue that can arise when acting for multiple clients about managing the independent duties of confidentiality that you owe to each client, and the risk that you might become aware of information from one client which is material to the matter and which you are required to disclose to your other client. Instances when this can occur, and put the in-house solicitor in a difficult position, might be when acting for multiple group companies on an intragroup arrangement, or when acting for employer and employee co-respondents on an employment tribunal claim.
Speaking of which, we specifically asked the SRA to address the question of whether in-house solicitors can act for employees who are joined as parties to litigation against the employer. This situation comes up regularly for in-house employment teams who, for example, may be asked to act for a manager named as a co-respondent to employment tribunal claims along with the employer. The final guidance indicates that such an arrangement is permitted, though consideration will always need to be given (on an ongoing basis) as to the risk of conflict of interests arising between the interests of the employer and employee co-respondents. The SRA have indicated they will issue a new case study on this scenario, so watch this space.
This section of the guidance also emphasises the importance of having effective systems for taking instructions, advising and reporting. While informal discussions with colleagues are common, the guidance cautions about a lack of controls around instructions and the risks this can create for in-house solicitors.
Finally, a theme which is common throughout the guidance is the importance of written records and documenting your identification, management and decisions about regulatory matters – whether it be about your analysis of potential conflicts of interest, concerns regarding possible wrongdoing or otherwise. Such written records may of course be unfavourable to your employer; however in the event of investigation, the SRA will undoubtedly ask for contemporaneous documentation which supports the regulatory conclusions, decisions or steps that were taken at the relevant time.
Reporting concerns about wrongdoing when working in-house.
This guidance makes it clear that in-house solicitors have a duty to escalate and report certain concerns about their organisation's actions. Again, the message is that in-house solicitors are duty bound to adhere to the SRA Principles and that our obligation to act with integrity, independence and in a way which upholds public trust and confidence comes before the interests of the employer organisation.
The guidance helpfully confirms that we do not need to make a report simply because our legal advice is not followed or where, for example, the "organisation has taken an entirely proper decision to accept a degree of legal risk". However, the SRA expects in-house solicitors to report - internally at least - concerns regarding:
- circumstances in which loopholes are exploited with a clear aim or outcome of defeating the intention of the legislation in question
- an actual or potential breach of regulatory requirements
- an actual or potential breach of the law
- a risk that requires the organisation to take action or report to an external body.
Note the word "concerns" there – not any breach of the law must be reported, only ones that reach a "concern" threshold. This connotes the need for materiality, although it is not immediately apparent where the line of that materiality is to be drawn. The guidance provides some case studies on when to report which attempt to shed some light here, though the reality is that this will always be hugely context and fact specific.
The guidance emphasises the SRA's expectation that in-house solicitors play a key role in creating and fostering a "speak up" culture within our organisations. This is not perhaps unsurprising, and in-house legal teams may in some organisations already act as some sort of "moral compass". However, this is more difficult for junior in-house solicitors if the culture of the organisation is not open and transparent or there aren't effective systems for reporting concerns and the solicitor lacks the power or authority to do much about it.
How to report concerns? The guidance, while not prescriptive, says that in-house solicitors would normally report through the chain of legal management (i.e. to the General Counsel) with GCs then reporting to the governing board (or equivalent). One point to watch here: The guidance says that the SRA will ask the most senior and/or lead solicitor within an in-house team to "account" to them as the contact point for the regulatory matters in respect of the solicitors within the legal team and the legal work carried out with the organisation. This is a single sentence in the guidance, without any further commentary as to what this will look like in practice. Query whether this will evolve into something akin to the Compliance Officer for Legal Practice (or "COLP") role found in SRA-authorised firms – or a slimmed down version of it?
The guidance also says that employers should have whistleblowing processes in place (note that this isn't a legal requirement although most employers large enough to employ in-house legal teams would be likely to have those policies) and that in-house solicitors should familiarise themselves with those processes, and use them where necessary and appropriate.
The guidance acknowledges the situation is more difficult for GCs and other in-house lawyers who report directly to the governing body, especially if that body decides that the wrongdoing should persist. It stresses that "you must not turn a blind eye to wrongdoing or be complicit in it" and that reporting externally may be required in some circumstances (including to the SRA). Ultimately, if wrongdoing persists, "the situation may therefore arise where you feel there is no other recourse but to resign." The explicit reference to resignation is new (it was not in the earlier draft guidance) and sobering to say the least. It represents an acknowledgment of the real-world choice facing some in-house solicitors (particular those with greater seniority), but this is perhaps of little comfort.
Legal professional privilege when working in house
This is a completely new section of the guidance that was not published with the earlier draft guidance. The SRA responded to feedback it received that in-house solicitors needed "clarification on confidentiality and legal professional privilege". It is not intended to set any new regulatory standards or requirements but is intended as a summary of the scope of privilege when working in-house, acknowledging that this is tricky issue becomes particularly thorny when applied to the in-house community.
The guidance sets out the different types of privilege, the principles applying to each and the basic rules around when privilege arises and can be lost. It also emphasises the importance of:
- identifying who the "internal" client group is in relation to the advice to which privilege might attach (recognising that the client group will be significantly narrower than the entire workforce of your organisation);
- ascertaining what communications attract privilege, particularly when your role and therefore communications will invariably mix both legal and non-legal elements (though the guidance does not recognise that there is rarely a clear dividing line between when you are giving legal advice and when you are giving more commercial/strategic advice);
- strict document restrictions/controls so as to limit unauthorised access to, or disclosure of, privileged material.
The guidance contains a clear warning against mislabelling documents as privileged when they are not, and advises in-house solicitors to resist pressure to use privilege labels to avoid or suppress disclosure. The rationale here is clear: in-house solicitors misusing privilege labels and constructing questionable barriers of confidentiality and/or privilege will be regarded as damaging public trust and confidence in the profession. The guidance reminds in-house solicitors that we are officers of the court and are required to act with independence and integrity at all times.
One of the points we made to the SRA before the guidance was finalised was the unique position of in-house solicitors as regards whistleblower protection. Section 43B(4) of the Employment Rights Act 1996 says that a disclosure of information does not qualify for whistleblower protection if that information is privileged and the disclosure is made "by a person to whom the information had been disclosed in the course of obtaining legal advice".
The final guidance now acknowledges this issue and has sought to clarify how the SRA might deal with a regulatory complaint against an in-house solicitor for disclosing privileged material when whistleblowing. The guidance effectively (and surprisingly) implies that, by agreeing to have an internal whistleblowing hotline, the employer organisation might have consented to disclosures of such privileged material via the hotline, and that the SRA will "consider your intention as part of [its] wider consideration of the circumstances of the case". Again, this likely provides very limited comfort to the unfortunate in-house solicitor in such an invidious position; not least because they still would not have any whistleblower protection.
Conclusion
On the whole, it is beneficial that in-house solicitors now have greater clarity around how they are expected to interpret, manage and balance their regulatory obligations and duties with the commercial realities, pressures and expectations of their employers, and to have something to point to when the outer boundaries of what is permissible come under threat. It is of course sobering what the regulator expects an in-house solicitor to do if things get really bad. However, that reflects the seriousness and gravity of their role – something that may not always be at the forefront of an in-house solicitor's mind (and certainly won't be in the case of their employer): an in-house solicitor is an officer of the Court first and an employee second. It is unsurprising therefore that the SRA's guidance underscores the importance of acting in accordance with its Principles to those practising in-house.
Practically, in-house solicitors should think about:
- how best to communicate with their organisations about the new guidance and what they can and cannot do;
- what better internal processes and procedures could be put in place to help manage the regulatory risks and challenges referred to in the guidance;
- what reporting concerns looks like for you in your organisation, and how might that process be created and/or documented;
- what written records might you start keeping, to demonstrate compliance with your obligations.
Finally, and on a more cynical note, there is perhaps a more cautionary, ominous side to the guidance, when considered in the wake of the Post Office scandal. By better articulating its expectations of in-house solicitors and how they can comply with their regulatory obligations and duties, the SRA has consequently sharpened and intensified the calibration of its investigatory crosshairs, ready to hone in on any in-house solicitor found wanting in the fallout of the next corporate scandal. Never let it be said that they weren't warned...
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