The Independent Counsel

Compliance


Employing the Attorney - Client Privilege for your Company


Keep Critical Legal Communications Secret


BY J. ALDEN LINCOLN

It often becomes necessary for company officials to confide very sensitive information to legal counsel in the course of obtaining legal advice. In order to foster such the communications, the law makes them confidential and prevents their disclosure unless the client agrees to it, or fails to take measures to protect this privilege. This privilege can prove invaluable, since it enables companies to investigate and assess contingent legal liabilities that otherwise might go undetected - for example, a privileged audit of environmental legal risks.

Essentially, the attorney - client privilege covers a communication between a licensed attorney and a client. It is the communication that is protected and not the underlying facts. The attorney must be acting as a lawyer (and not as a business advisor). The communication must be made in confidence, for the purpose of receiving legal advice, and not for the purpose of committing a crime or fraud.

While the privilege applies to corporations as well as individuals, the rules governing the privilege in the corporate context are more complex than for an individual. Some corporate privilege issues and cautions are noted below:

The corporate attorney - client privilege only protects the corporation, not its individual directors, officers, or employees. However, since the company can act only through individuals, the question can arise as to which corporate communications are privileged.

In Upjohn v. U.S., a landmark case decided in 1981, the U.S. Supreme Court ruled that communications with low level employees, as well as with officers and directors, could be protected, provided: (1) the communication was made at the direction of corporate officials to obtain legal advice; (2) the matters communicated fell within the scope of the employee's duties and were not available from upper level employees; (3) employees were aware that the purpose of the inquiry was to help in obtaining legal advice; and (4) the communications were intended to be kept confidential.

Since individuals are not clients for the purpose of the privilege, the individual employee may not exercise the privilege to protect himself. An employee therefore is well advised to consult with his own lawyer before disclosing information to company counsel if there is any possibility that the employee might thereby expose himself to personal liability or prosecution.

The privileged communication must concern legal advice, not just be a communication with counsel. If the communication only relates to a factual inquiry, its privileged status may be challenged. In addition, it must be made clear that counsel is acting in his or her legal capacity.

Since corporate counsel often participate in business functions, their role can be unclear, and the privilege thereby jeopardized. For example, a lawyer who is also responsible for human resource administration may not be able to claim privilege on behalf of his or her corporate client in the case of an employee termination.

To qualify for privilege, there must be an initial intention to keep the communication confidential, i.e., not be disclosed to third parties such as vendors, customers, auditors, governmental officials, etc. If the communication is oral, it should be undertaken outside the presence of third parties. Moreover, internal circulation of the communication should be limited to persons who “need to know.” Finally, it is a good practice to label documents Privileged Attorney - Client as well as Confidential, and to avoid placing such documents in readily available company files. If linked computer files or the Internet are to be used, consult with a knowledgeable computer security advisor.

The attorney - client privilege can be waived through any unprotected disclosure to a third party and, once waived, the privilege for all communications relating to the same subject matter will be lost. And a waiver may not be limited. For example, if a client sends a privileged document to a third party such as a vendor or a customer, the privileged is waived or, if the client states that an action was taken on advice of counsel, evidence of that advice may be introduced at trial.

Thus, inadvertent waiver should be avoided at all costs. To be safe, the President, CEO or COO ought to obtain from general counsel a set of guidelines to be communicated to all management personnel regarding the handling of privileged communications, particularly when counsel is about to conduct a legally sensitive investigation.

The Work Product Doctrine is an extension of the Attorney - Client Privilege, and protects those materials prepared in anticipation of litigation. Unlike that privilege, the Work Product protection may cover other information besides actual communications between lawyer and client. The theory is that one party to litigation should not be able to obtain the benefit of the other party's work simply by asking for it.

Comment: The attorney client privilege can facilitate your company’s use of counsel, both in the conduct of sensitive investigations and in effective litigation management. However, one must exercise constant vigilance, or risk losing the privilege.

© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1996; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.