This article originally appeared in InsideCounsel.
While companies have always struggled with finding a balance between privilege, confidentiality and employee rights, the rise in external whistleblowing and the creation of whistleblower protection laws have created new challenges for companies conducting internal investigations.
For cases involving whistleblowers, the burden faced by companies seeking to defend and preserve privilege and confidentiality has significantly increased. Companies must now strategically consider what they need to do to safeguard their privilege in response to these challenges and determine whether the investigative practices they use to protect and preserve privilege violate or “chill” whistleblower’s rights.
New challenges for internal investigations
The internal investigative practices of companies have recently come under increased scrutiny. For example, in a recent qui tam False Claims Act (FCA) action, the district court rejected a company’s claim that certain documents created during its internal investigation were privileged and protected from disclosure. The district court, relying on the Supreme Court’s decision inUpjohn, determined that the privilege did not apply based on the whistleblower’s arguments that the investigation was conducted by in-house counsel without consultation of outside counsel; many employees were interviewed by non-lawyers; the employees interviewed were not advised that the interviews were for the purpose of obtaining legal advice; and the investigation was done to ensure compliance with government regulations. On appeal, the circuit court overruled the district court’s decision based, in part, on the determination that it had incorrectly applied theUpjohn decision and improperly used the “but for” test instead of the “significant purpose” test to assess privilege.
The internal investigative practices of companies have also come under direct attack by government regulators. In the whistleblower-initiated investigation, the SEC, pursuant to Rule 21F-17(a), issued a cease-and-desist order and imposed a $130,000 fine on a company for making employees sign a confidentiality agreement that may have silenced or “chilled” a whistleblower’s willingness to report illegal conduct to the SEC. Notably, there was no evidence that any employee was actually prevented from providing information to the SEC or that the company had attempted to enforce the agreement.
Establishing privilege in internal investigations
Privilege has always played a vital role in internal investigations. But given the explosion in quitam actions and government investigations based on whistleblower tips, companies cannot afford to blindly assume that their internal communications and documents will withstand a privilege challenge simply because they were made during the course of an internal investigation.
The main challenge companies face when trying to establish privilege is making sure they meet the threshold test regardless of which jurisdiction a case arises. In certain jurisdictions, such as those that look at whether the “significant purpose” of the communication was for legal advice, privilege may be easy to establish. However, in other jurisdictions, such as those that look at whether the “primary purpose” of the communication was to obtain legal advice or whether the communication would not have been made “but for” the need for legal advice, establishing privilege can be much more difficult.
When a whistleblower is thrown into this calculation, establishing and maintaining privilegepresents new challenges because whistleblowers have “insider” knowledge regarding the company’s internal investigation and investigative practices. For example, whistleblowers may have knowledge about whether external counsel was involved, who conducted the witness interviews, the legal warnings given (or not given) during witness interviews, and the stated purpose of the internal investigation. Thus, companies defending actions brought by or initiated by whistleblowers may face tougher privilege challenges based on factual allegations regarding the manner in which the internal investigation was conducted.
Keeping the internal investigation confidential
Companies routinely use procedures, such as Upjohn warnings and confidentiality instructions or agreements, to keep matters discussed during internal investigations confidential. While taking these measures are necessary to preserve the company’s privilege, a new balance must be reached to avoid running afoul of whistleblower rights. Given the advent of SEC Rule 21F-17(a) prohibiting employers from using confidentiality, employment, severance or other agreements that may silence potential whistleblowers and the SEC’s determination to “vigorously enforce this provision,” companies must carefully review their internal investigation procedures and policies to make such they do not run afoul of this rule. In addition, as was recently affirmed by Judge Furman in the S.D.N.Y., companies should remember that the disclosure of facts relating to an internal investigation does not necessarily mean that privilege or confidentially has been waived.
Privilege and employee rights
Preserving privilege in internal investigations can become even more complicated if the whistleblower raises a retaliation claim based on their whistleblowing activities. This is because whistleblower retaliation claims create a unique tension with respect to privilege. Many times employment lawyers do not want their investigation of whistleblower retaliation claims to be privileged so that they can establish that there was a valid reason for the adverse employment action taken. But, companies want the investigation of the substantive claims made by the whistleblower to be protected by privilege to prevent disclosure in potential actions brought against them. Often times these two objectives can become intertwined and destroy privilege claims if the investigations are conducted together or by the same group of people.
Facing the challenges
While whistleblowers have created new challenges to preserving privilege during internal investigations, there are practical steps companies can take to help protect their privilege and make sure whistleblower rights are not violated.
Savaria Harris is a parter with DLA Piper, where her practice centers on providing clients with an integrated approach to addressing fraud, whistleblower and government actions under the False Claims Act and its local equivalents. Her representative experience includes complex contract disputes, federal agency investigations and enforcement actions, antitrust and unfair competition cases, product liability, mass tort and bankruptcy.
