INVESTIGATIONS AND OTHER INITIAL CONCERNS
Angel Gomez, III
Katten Muchin Zavis
(310) 788-4400
1.
Investigations and Related Issues
There is an important distinction between (a) initial investigation done for the purpose of
gathering information to make employment decision, and (b) post-litigation investigation.
(a)
Initial investigation before litigation
Basic issues and concerns here address the possibly conflicting strategic need to
perform an adequate investigation, on the one hand, contrasting with the need for
frank, privileged attorney-client communications. This tension is acute when the
employer is investigating sexual harassment claims, and facing possible lawsuits
from the alleged victim, and from a terminated alleged sexual harasser. Among
the decisions to be made include:
(1)
Attorney or non-attorney investigator, or combination of the two
Attorney investigators would be able to claim privileged attorney-client
communications more easily, but the employer may need to, or want to,
waive this privilege.
(2)
In-house or outside investigator, or a combination of the two
To the extent that attorney-client privilege is sought, working with an
outside attorney may reduce plaintiff's arguments that the investigation did
not meet attorney-client standards.
(3)
Attorney-client privilege issues and possible later waiver
Many employers may want to protect much of the investigation within
attorney-client protection, with the explicit thought that some or all of the
investigation may later be discoverable or admissible. Attorney
communications with agents and employees of the employer are generally
protected. The employee need not be a member of the employer's control
group, in order to have the attorney-client privilege protect the
communications. See Mills Land and Water Co. v. Golden West Refining
Co. (1986) 186 Cal. App. 3d 116. However, the issue of the quality and
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details of the investigation may later become a part of the employer's
defense. In this circumstance, the employer may be viewed as having
waived the attorney-client privilege. See Wellpoint Health Networks, Inc.
v. Sup. Ct. (1997) 59 Cal. App. 4th 110, 128-29. The court may conclude
that the employer "cannot have it both ways." That is, an employer may
not be able to argue that its attorney performed an "appropriate
investigation" -- but then argue that the details of that investigation are
shielded by the privilege from discovery and admissibility.
(4)
Protection of Work-Product
Work product protection applies solely to work done by attorneys, and the
attorney's agents and consultants, and does not apply to non-legal work
performed by one of these people. Hence, an assignment purely to
"investigate" a situation may not qualify as work product -- however, an
assignment to investigate for the purpose of later rendering advice should
be protectable. In addition, employers should be aware of the distinction
between "absolute protection" and "qualified protection" of work product.
Absolute protection covers an attorney's impressions, opinions, etc.
Qualified protection extends to other work product, such as merely
recording in writing the comments of an interviewee. This qualified
privilege will be lost if assertion of the privilege would "unfairly prejudice"
the other side, and would "result in an injustice." CCP § 2018 (b). Witness
statements prepared by the interviewee are not technically work product,
nor are oral statements made to the attorney. Despite this technicality,
typically courts will protect these statements from discovery absent a
showing of "good cause." See Greyhound Corp. v. Sup. Ct. (1961) 56 C.
2d 355. Good cause may be shown by a "special need," and an "inability to
obtain" a similar statement. See Christy v. Sup. Ct. (1967) 252 Cal. App.
2d 69, 71-72.
(5)
Role of In-House Attorney
One possibility, available in some cases, would be to have the hands-on
portion of the investigation handled by an experienced senior HR person,
with close coordination by an in-house attorney, who in turn is coordinating
with an outside attorney.
(6)
Who should be the decision-maker
Understand that this person will be a primary witness. Given that at this
early stage there may be some latitude, take care that the person given the
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authority to make the final termination decision will be able to accurately
and constructively present the reasons for the termination to the jury.
(7)
Written reports -- privileged? discoverable? admissible?
At least one strategy would be that any written reports be written by the
investigator and the reports be addressed solely to in-house or outside
counsel (or jointly to both), and be clearly titled "Attorney-Client
Privileged Communications." The employer may then have the later option
of choosing to disclose this report. A different option might be to have
some written reports be addressed by the investigator to "the file," with the
thought that these reports will document the investigation, and will be later
discoverable and admissible; while other written reports will be addressed
solely to counsel, with the thought that these will remain privileged. Still a
third option is that no attorney-client written privileged reports are made,
and all written reports are created with the understanding that they will be
discoverable and admissible. Obviously, in all these situations, there is a
tension between the need to conduct a full and complete investigation, and
the risks associated with making hasty statements which will later be
argued are admissions of liability by the employer.
(8)
Privacy concerns
In any investigation, there may also be a trade-off between the need for a
full investigation, and a desire (or obligation) to protect the privacy of the
accused and the accuser. There is no easy answer to the best method to
accomplish this, as employers may be second-guessed for a failure to
interview every potential witness -- even where the employer has decided to
keep the scope of the investigation relative compact out of concern for
privacy -- for example, in order to prevent the unnecessary spread of what
might be false and very harmful rumors.
(9)
Communication of results of investigation
In sexual harassment cases, employers are obligated to report back a
summarized version of their investigation results to the complaining victim.
The results should also be communicated to the alleged harasser. In other
types of potential discipline disputes, the employer will naturally need to
communicate the results of the investigation with the employee being
disciplined.
(10)
Discipline of alleged sexual harasser
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Especially in sexual harassment claims, how does the employer
communicate the discipline or termination to the alleged harasser without
thereby creating "Exhibit A" for the alleged victim/plaintiff? This is an
extraordinarily difficult question, and one that will require very careful
phrasing so as not to constitute an admission by the employer that sexual
harassment did occur.
(11) Effect of statement in Cotran about "appropriate investigation".
Beware the "Trojan Horse" within the Cotran decision, Cotran v. Rollins
Hudig Hall International, Inc. (1998) 17 Cal. 4th 93, 107-09, which
explicitly invites the jury to examine the details of the whether the
employer's investigation was "appropriate," as an additional area for the
plaintiff to attack. This vague standard may necessarily make the
investigation done by the employer an issue in the case -- and require a
waiver of at least some attorney-client communications, unless those
communications have been properly protected.
(12)
Use of an independent investigator
Some employers are experimenting with the use of an "independent"
outside investigator, who will come into a workplace (typically after an
internal complaint of sexual harassment), in order to interview witnesses
and engage in fact-finding -- all with the intent of preparing an "impartial"
report for delivery to both the employer and the affected employees. The
intent is that an ADR procedure will be followed once the independent
investigator has prepared his or her report.
(b)
Post-filing investigation
The issues of attorney-client privilege and work product protection, which are so
prominent in the initial investigation, above, are typically not usually present once
a Complaint has been filed (or is expected shortly). In this litigation situation, the
investigation is usually not done for the purpose of assembling information for an
employment decision, but rather is done solely for the purpose of gathering
information to defend the lawsuit.
(1)
Complaint:
Analyze legal theories, facts alleged, begin to develop chronology of
events, and list of possible witnesses and interviewees.
(2)
Witnesses:
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Early, one-on-one interviews are essential:
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individuals who participated in the challenged decision
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Subordinates and peers can provide useful information that will
usually be given weight
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Discussions with the defense counsel are privileged and confidential.
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Try to establish a good personal working relationship with
witnesses. Witnesses may be friendly, confused, suspicious, or
outright hostile. Explain counsel's and their roles and process.
Counsel may need to be convincing on issue of their cooperation.
Occasionally play devil's advocate with the witness in order to test
the demeanor and credibility of witnesses.
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Typical topics to cover in initial interview with primary decisionmaker include:
--
Briefly introduce self and role
What employer does (if needed)
Story of what happened (let interviewee ramble and vent, if
needed)
Organization chart(s) - for all relevant time periods
Policy manual or memos, personnel file, disciplinary memos,
other documents
Go back over story a second time, this time tracking with
documentation
Identify and assess other potential interviewees and witnesses
Discuss attorney-client privilege issues
Discuss conflict of interest issues (if needed)
Discuss legal/administrative process issues
Raise settlement/ADR concepts
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Make an assessment how likely it is that a witness will remain
available to the employer in the future. For example, a potential
witness may be in poor health, leave employment, or have a motive
to change testimony in the future. Counsel should give immediate
consideration to "locking-in" such witnesses' testimony through
declarations or affidavits, or possibly through depositions.
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Tentatively assign all potential interviewees and witnesses to
following grid:
Neutral or
Don't Know
Helpful
Hostile
Will cooperate
Don't know
Won't cooperate
(3)
Obtain as many of the following documents which are relevant
or possibly relevant:
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employee handbook, personnel policy manual
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2.
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"At will" statement, application forms, other documents relating to
"at will" status
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any employment contract, union contract, stock option plan, bonus
plan
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plaintiff's personnel file
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documentation supporting or concerning the action at issue
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other files: HR, EEOC, compensation, benefits files
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"unofficial" files kept by supervisors about plaintiff
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correspondence to or from plaintiff
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relevant documents regarding workers' compensation or
unemployment benefits or other agency-related documents
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copies of any charges: EEOC, DFEH, NLRB, etc.
Other Initial Considerations
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Conflicts of Interest
Joint Defense Agreements
Removal
Insurance Policies
(a)
Conflicts of interest
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Obviously, a thorough standard conflicts check should be run of all known
and likely parties.
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In addition, where individual defendants are (or may be) named in the suit,
look for potential or actual conflicts between the employer and the
individual defendants. If a named supervisor acted outside the scope of his
or her employment, the employer may be able to argue that it is not liable
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for that supervisor's acts. Depending on a judgment call as to the potential
for a conflict of interest, the following options should be considered.
--
Where the potential for a conflict is small or non-existent, and the
same attorney will be representing both the employer and the
individual defendant, ask employer and individual defendant to
execute an agreement at the beginning of representation that (1)
potential for conflict exists; (2) if it turns into an actual conflict in
the future, the employee may retain independent counsel; and (3) in
such event, counsel who had represented the employer and the
individual defendant may continue to represent the employer. While
this is not guaranteed to prevent future disqualification, it provides
the employer an additional argument if a dispute later arises.
--
Where there appears to be a more than modest risk that the
individual defendant was acting outside the scope of employment, it
is probably safer to engage separate counsel for the employee at an
early stage. If the employee has separate counsel, California Labor
Code § 2802 may apply -- the employer must re-imburse the
employee for expenses incurred "in direct consequence of the
discharge of his duties as such." Typically, if the employee is not
liable, and is falsely accused, § 2802 would likely result in complete
reimbursement. Where, however, the individual was acting for the
own personal ends, then no reimbursement will be necessary.
Importantly, this issue may not be determined until the end of the
trial, and an analysis of the jury's verdict. Notice as well, that the
employer's obligation here is re-imbursement -- not necessarily repayment as the expenses are incurred. There are a number of
options: (a) the employee's attorneys' fees are paid for "up-front" by
the employer as they are incurred; (b) the employee's attorney's fees
are loaned to the employee by the employer, as they are incurred; or
(c) the employee's attorney's fees are borne by the employee until the
end of the case, when it is determined if the conditions requiring
reimbursement have been met. Where the fees are loaned, the
employee is told that if the conditions requiring reimbursement are
met, the loan will be considered repaid in full.
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--
When an actual conflict arises, it will be difficult for counsel to
continue to represent the employer and the individual defendant. If
continued representation of some clients would risk breaching the
confidences of other clients, counsel must withdraw from
representing all clients in the action.
(b)
Joint Defense Agreements
Where there are two are more co-defendants who are represented by separate
counsel, it is typically to everybody's benefit that a formal "joint defense
agreement" be entered into between the co-defendants. Typically, this permits
interviews of each other's witnesses and review of each other's documents, out of
the presence of the plaintiff's attorney. There may also be an agreed-upon
mechanism (typically arbitration) for resolution of any disputes between the codefendants, and may also provide for the resolution of any indemnification or
contribution disputes after the conclusion of the main litigation through an ADR
process.
(c)
Removal
If removal is available, there must be a decision whether to remove the case to
federal court. Removal must be done within 30 days of the receipt (not service) of
the complaint or other paper which shows that the case is or has become
removable. This 30-day period begins to runs from receipt by the first defendant - hence, if a co-defendant is served first, and allows the 30 days to lapse, later
defendants are probably barred from removing the case.
(1)
Most employers prefer to litigate claims in federal court if
possible.
The perceived advantages of federal court include: greater likelihood of
success in pretrial motions, likely less familiarity with federal court by
plaintiff's attorney, swifter and stricter case management, the possibility
that the federal judge may be less sympathetic to state law claims, greater
availability of pre-trial dispositive motions, typically more conservative
juries, and a unanimous jury verdict needed (instead of a 9/12 majority in
state court).
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(2)
Diversity jurisdiction
Where the amount in controversy exceeds $50,000, and where there is
complete diversity of citizenship and no defendant is a citizen of the forum
state, removal is available.
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However, removal is typically also available when the conditions of
diversity are met among the named parties, and the only other
defendants are "Doe" defendants -- the federal court will disregard
them for purposes of determining diversity jurisdiction.
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Removal may also be available if the claims alleged in the complaint
may not actually be brought against the non-diverse defendants
("fraudulent joinder doctrine").
(3)
Federal question jurisdiction
Removal is available when the plaintiff's complaint expressly (or in some
cases, implicitly) contains a cause of action under federal laws.
(d)
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"Complete Preemption": In some areas, Congress has regulated an
area of law so completely that any civil complaint raising such
claims is necessarily federal in character and therefore removable
even if the federal claim is not expressly asserted in the complaint,
examples: NLRA, ERISA.
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Merrell Dow: A plaintiff may allege that a termination in violation
of public policy claim exists because the employer violated the
public policy contained in a federal statute, such as the Americans
with Disabilities Act; such a case may then possibly be removed
under Merrell Dow Pharmaceuticals v. Thompson, 478 U.S. 804
(1986).
Insurance policies
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Review workers' compensation, comprehensive general liability ("CGL"),
professional liability ("errors and omissions"), employer practices liability
("EPL"), and umbrella or excess liability insurance policies.
--
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An insurer is generally not liable for loss caused by an insured's "willful"
act (see Ins. Code § 533); however, an insurer may be required to pay
defense costs if the insured reasonably expects the policy to cover the types
of acts involved in the suit. Although most insurance companies have
tightened up policy language, there may still be a way to get defense costs
paid.
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Be very cautious about the purchase of Employment Practices Liability
insurance. These policies are still very new and untested in the courts, and
they may provide substantially less coverage than may appear.
The three largest areas of exposure to employers in employment litigation
are: (1) breach of contract damages, (2) damages resulting from intentional
acts of discrimination, including sexual harassment, and (3) punitive
damages.
-- Yet it is precisely these three areas of exposure that are not covered by
virtually all insurance policies, including many, if not most EPL policies.
In other words, the areas of highest risk to employers are typically not
covered, even in many EPL policies.
-- Equally importantly, examine very carefully your ability to select your
counsel. Employment litigation, unlike many other types of litigation, are
typically very emotional, and can have wide ramifications within the
workplace and in the personal lives of the people involved. Make sure that
you will have the ability to select the counsel who are specialists in
employment litigation, and who are known and acceptable to you.
--
In addition, be very cautious about the amount of money that the insurance
company will pay towards your attorney's fees. If the insurance company
has an artificially low rate, you may find yourself paying the difference
between the insurance company's rate, and your desired attorney's normal
rate.
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-- Plus, be aware that under the recent decision in Buss v. Sup. Ct. (1997)
16 Cal. 4th 35, in the typical situation where some claims are potentially
covered, and others are not, and where the insurance company is defending
the entire action, even those claims which are not potentially covered, the
insurance company has the right to seek re-imbursement from the employer
of all attorneys' fees that can be allocated to the defense of what turn out to
be claims which are not potentially covered.
-- Just recently, there are policies appearing on the market which purport to
pay for contract damages (at least damages arising from breach of an
implied contract), and which purportedly will pay for damages arising from
an intentional act of discrimination, and will purportedly pay any punitive
damage assessment. These types of policies appear to be untested in
California, and may run afoul of Ins. Code § 533 (no insurance for losses
caused by wrongful "wilful act")
-- In addition, of course, all of these policies will carry a per claim
deductible (self-insured retention) in the range of $50,000 - $500,000.
-- Notwithstanding the possibility that actual coverage for the most likely
exposure may be limited (or non-existent), some employers may decide to
purchase EPL in the hope that at least some portion of their attorneys' fees
will be paid -- after the deductible and any re-imbursement to the insurance
company. If so, carefully balance the premium that is being charged
against the possible net recovery from the insurance company. Typical
premiums start at approximately $25,000 per $1 million of coverage, with
$5 million of coverage being a minimum standard recommended coverage.
Employers will need to balance this $100,000+ annual premium against the
chances of recovering net money in excess of that premium from the
insurance company.
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In addition, the following questions should be asked about other insurance
policies.
-- Are there any special endorsements regarding administration of an
employee benefit program?
--
In umbrella or excess policies, look at "personal injury" definition.
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-- In directors and officers liability policies ("D & O"), is employer insured
against loss caused by the wrongful acts of corporate officials?
-- In suit against corporate directors or officers, look at "wrongful act"
definition.
--
Is there a possibility of coverage under an individual defendant's
homeowner's policy? (Almost never, since such policies usually exclude
intentional acts and acts arising from business pursuits.)
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