The privileged nature of the advice and counsel of employment lawyers must not be taken for granted, and it is hoped that the court’s ruling in 'In re Grand Jury' will clarify and provide clear guidelines regarding the privilege’s application to counsel’s activities.
By Philip M. Berkowitz | November 9, 2022
Employment lawyers spend their days consulting with their clients, guiding them through troublesome human resources issues, recommending disciplinary approaches, drafting performance improvement plans, drafting scripts for meetings between lawyers and their clients, and providing other assistance in the hope of avoiding legal difficulties and employment litigation.
Clients and their lawyers reasonably expect that this advice is protected by the attorney-client privilege or the work product doctrine. Itis provided in response to requests for legal advice in scenarios that may well pose significant legal risk.
But how reasonable is the expectation that the advice is privileged? The issue may receive helpful clarity from the U.S. Supreme Court, which recently accepted for review, in light of a split in the circuits, the issue of whether and when “dual-purpose communications” are protected by the attorney- client privilege.
In In re Grand Jury, 23 F.4th 1088 (9th Cir.), cert. granted, —S. Ct. —-, 2022 WL 4651237 (2022), the U.S. Court of Appeals for the Ninth Circuit observed, “[g]iven our increasingly complex regulatory landscape, attorneys often wear dual hats, serving as both a lawyer and a trusted business advisor.”
The question for the court was whether the privileged nature of “dual-purpose communications,” consisting of both business and legal advice, should be determined under a “primary purpose” or a “because of” test.
Under the primary purpose test, courts consider whether the primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice. (In re Grand Jury arises out of the employer’s challenges to grand jury subpoenas seeking information concerning tax-related matters.)
The because-of test, however, does not consider whether litigation was a primary or secondary motive behind the creation of a document. Instead, it considers the totality of the circumstances, and affords protection when it can be fairly said that the document was created because of anticipated litigation and would not have been created in substantially similar form but for the prospect of that litigation.
The because-of test is a broader test and thus more forgiving test than the primary purpose test, because it looks only for a causal connection, and not a primary reason. Id.
The court held that the primary purpose test is the appropriate one for this analysis.
Why impose the stricter test on application of the privilege to these communications? Quoting the Restatement of the Law Governing Lawyers, the court noted that for the privilege to apply in the first place, the “client must consult the lawyer for the purpose of obtaining legal assistance and not predominantly for another purpose.”
And the court also cited the Supreme Court’s decision in Fisher v. United States, which held that the privilege “protects only those disclosures necessary to obtain informed legal advice which might not have been made absent the privilege.” 425 U.S. 391, 403(1976).
Thus, the court held that the primary purpose test is the better test for determining application of the attorney-client privilege to “dual purpose” communications. (Interestingly, the court noted that the Second Circuit has also applied “a version of” the primary purpose test to the application of the attorney-client privilege in these circumstances. See In re County of Erie, 473 F.3d 413, 420 (2d Cir. 2007)(“We consider whether the predominant purpose of the communication is to render or solicit legal advice.”). The court stated that the broader “because of” test is better applied to the work product doctrine than to the attorney-client privilege.)
The court also expressed concern that applying the “because of” test to attorney client privilege could harm the adversarial system by creating “perverse incentives for companies to add layers of lawyers to every business decision in hopes of insulating themselves from scrutiny in any future litigation.”
Here, the court may have gone a step too far. As the Supreme Court held in Upjohn Co. v. United States , the purpose of the privilege “is to encourage full and frank communications, between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” 449 U.S. 383, 389 (1981).
The interest in preserving the privilege is a key rationale for retaining counsel in the first place—to obtain advice in a manner to shield the confidentiality of the communication—and there is no sin in doing so.
In re Grand Jury is a tax case, and courts have limited the application of the privilege in that context. Indeed, the Ninth Circuit noted that “normal tax return preparation advice—even coming from lawyers—is generally not privileged, and courts should be careful to not accidentally create an accountant’s privilege where none is supposed to exist.” 13 F.4th at 717 (emphasis in original).
Nevertheless, the Supreme Court may well use the opportunity, in reviewing this decision, to clarify the scope of the privilege—in away, one hopes, that makes clear that the default rule should be to better protect the privileged nature of the communication in circumstances where the purpose of the communication may be mixed.
But what about the more fundamental question—when does employment law advice cross the line from legal to business advice? A troublesome Eastern District of New York decision, Koumoulis v. Independent Financial Marketing Group, 295 F.R.D. 28 (E.D.N.Y.2013), bears review.
In Koumoulis, Magistrate Judge Vera Scanlon found that the defendant’s outside employment lawyer did not function primarily as a “consultant primarily on legal issues,” but instead “as an adjunct member of Defendants’ human resources team.”
The court described the attorney’s actions as, among other things, instructing the employer’s human resources personnel on what actions (including disciplinary actions) should be taken, when to take those actions, and who should perform them; telling the employer what should be documented and how it should be documented; drafting written communications to the plaintiff (a former employee)responding to his complaints; and drafting scripts for conversations with the employee about his complaints.
Moreover, the employer sent emails to the attorney reporting the outcome of actions she directed; asked her what they should do next; and updated her on new developments.
The court concluded that these communications concerned human resources rather than legal advice.
The court took specific note of the “difficulty” in parsing whether advice is legal or only human resources because of the “overlapping nature” of this advice. The court noted that while a primary purpose of a company’s human resources program is to ensure compliance with the law, this constitutes part of the day-to-day operation of a business and is not a legal activity.
The court concluded (citing the Second Circuit’s decision in In re County of Erie, supra at n. 5) that the “predominant purpose” of the attorney’s advice was business and not legal.
Magistrate Judge Scanlon noted several times that the in opposing the plaintiff’s motion to produce these records, the employer had not provided affidavits or other evidence to support the argument that the advice was privileged. Perhaps if the employer had provided affidavits attesting to the fact that counsel’s activities were in response to specific requests for legal advice, the result would have been different.
The privileged nature of the advice and counsel of employment lawyers, therefore, must not be taken for granted, and it is hoped that the court’s ruling in In re Grand Jury will clarify and provide clear guidelines regarding the privilege’s application to counsel’s activities.
Philip M. Berkowitz is a shareholder of Littler Mendelson and co-chair of the firm’s U.S. international employment law and financial services practices.
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Reprinted with permission from the November 9, 2022 edition of the New York Law Journal©
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