Tuesday, February 23, 2010

Another Reason to Shop at Costco

California Supreme Court Helps Keep the Lid on Pandora’s Box Investigations

I don’t need another reason to shop at Costco. I love the discounts, buying in bulk for my large family and the bin candy licorice. But, thanks to the California Supreme Court, I now have another reason to love Costco. According to the holding in Costco Wholesale Corporation v. Superior Court of Los Angeles County, (November 2009), a lawyer’s communications with clients, made for the purpose of giving advice, are absolutely protected from disclosure to adversaries, regardless of whether the communication contains factual or legal content. By upholding the sanctity of the attorney-client privilege, even when the attorney is conducting a fact-finding investigation in order to render a legal opinion, the California Supreme Court gave neutral attorney-investigators and their clients the ability to keep a lid on “Pandora’s Box Investigations.”

Yes, I made up that term. I made up the term “Pandora’s Box Investigation” based on my experience as a neutral attorney/investigator that has first-hand experience in conducting this type of investigation. A “Pandora’s Box Investigation” - named after the Greek mythological Goddess, Pandora who released all of God’s evils into the world by lifting the lid off her mythical box - is an investigation that through interviews and review of evidence reveals misdeeds well beyond the initial misconduct which instigated the investigation. The misdeeds are so egregious and create so much additional liability for the client if revealed, that the client, upon advice from her litigator, chooses to keep the investigation and the attorney/investigator’s conclusions or recommendations privileged. That is, an impartial investigation is often used as an employer’s defense in claims of harassment or wrongful termination so many employers opt to present the investigation in order to demonstrate that they acted reasonably with respect to the employee. In this instance, the employer is waiving its privilege. But, in the case of a Pandora’s Box Investigation, the employer chooses to keep the investigation under wraps so as not to expose itself to further liability and rely on the merits of the case or other available defenses in order to prevail.

For example, in Costco Wholesale Corporation v. Superior Court of Los Angeles County, Costco became aware that plaintiff’s attorneys were challenging the classification of retail industry managers as “exempt” from overtime and other wage laws. Anticipating a claim, Costco hired a wage and hour specialist, an attorney, to “investigate” Costco and provide an opinion as to whether Costco was properly classifying its own managers. For example, a company can call an employee Vice-President of Waste Management, but if the employee spends his day cleaning toilets, he will not be considered exempt. After interviewing Costco’s employees and analyzing their duties under the law, the attorney provided Costco with a legal opinion which contained a recitation of applicable facts, legal standards and analysis. A year after the receipt of the opinion letter, Costco reclassified many of its warehouse managers to non-exempt employees, making them eligible for overtime and other benefits. Presumably, the investigator found that Costco had misclassified the employees and Costco rectified this by making the appropriate changes.

A year and a half after that, Costco was sued in a class action lawsuit for misclassifying its employees and violating the wage and hour laws. The plaintiff’s attorneys wanted to see the content of that attorney’s report, assuming that it had evidence and an opinion that stated Costco was violating wage and hour laws – they wanted to open the Pandora’s Box, so to speak. Not surprisingly, Costco wanted to keep the lid on it. Costco’s counsel argued that the investigator/attorney’s factual findings and opinion should not be revealed to their adversaries or the court, i.e. it was protected by the attorney-client privilege, pursuant to Evidence Code 954. In November, 2009, the California Supreme Court agreed that the report was protected by the attorney-client privilege, even if the outside counsel gathered facts in the process of rendering legal advice, summaries of those facts were included in the written communications she prepared and those facts were otherwise discoverable in litigation.

Therefore, consistent with Costco Wholesale Corporation v. Superior Court of Los Angeles County, employers should feel reassured when using a neutral attorney/ investigator to investigate employee wrongdoing, in that the investigation will most likely be privileged in the event that the investigation reveals unanticipated potential employer liabilities. In order to ensure the investigation is deemed privileged until the employer/client decides to waive that privilege during litigation, the following Proactive Strategies should be implemented.

• Make sure, when retaining your neutral attorney/investigator to put the request for “legal advice” in writing and that the retainer agreement includes a reference or provision which states that a “privileged” legal opinion, not just a fact-finding will be provided at the conclusion of the investigation.

• Make sure all communications between the client and the attorney/investigator are marked “CONFIDENTIAL.” Make sure that the final work product from the attorney/investigator is marked “ATTORNEY WORK PRODUCT” and that it is not disseminated to third parties.

• In the memorandum (or letter) to the complainant or accused at the end of the investigation (which I recommend to inform the parties that the investigation is concluded and its results), provide a brief “summary” of the investigator’s conclusion, not the entirety of the factual findings and conclusions or recommendations. That way, a court will not deem the privileged “waived” by disclosure to third parties.

One last caveat, remember that ultimately, the investigator’s conversations, the investigation’s factual findings, the conclusions and recommendations will most likely be used as a defense in litigation and that the attorney-client privilege, in that instance, is waived by the company. That was the case in Wellpoint Health Networks v. Superior Court where the attorney/investigator was hired to determine whether misconduct occurred and demonstrate the employer made reasonable efforts to protect its employees from harassment. Therefore, an employer should anticipate this inevitability and only discuss confidential information with its company’s litigator, not with the neutral attorney-investigator. Once the privilege is waived, anything said to the investigator is discoverable and can be used against the employer.

Have you experienced a Pandora’s Box Investigation? What lessons did you learn?