United States: A Reminder To Be Careful With Ex-Employees And Confidential Information

Last Updated: November 29 2016
Article by James Beck

A lot of companies rely on retired and otherwise former employees for information in litigation – including product liability litigation. Particularly where a product (such as a drug that's now gone generic) has a long history, they are often the best source of knowledge about what happened years ago. In dealing with ex-employees, however, defendants must keep in mind that, for purposes of the attorney/client privilege, discussions with ex-employees are subject to being treated much differently (and less protectively) than corporate communications with current employees.

The recent case, Newman v. Highland School District No. 203, 381 P.3d 1188 (Wash. 2016), although not involving prescription medical products, or even product liability, is a cautionary tale. The defendant in Newman was a governmental entity, a school district. The plaintiff alleged that he suffered a brain injury playing high school football, and that the injury occurred because the plaintiff was allegedly allowed to play in a game the day after suffering a concussion in practice.

The plaintiff in Newman didn't sue until some three years after the injury. Id. at 1189-90. By then, most of the coaching staff had turned over, and the individuals with the best knowledge of what had happened were employed elsewhere. The school district's litigation counsel contacted the ex-coaches and when they were deposed, claimed to represent them. Id. at 1190. Plaintiff challenged that representation as a conflict of interest and "sought discovery concerning communications between [the defendant] and the former coaches." Id. The defendant resisted discovery with a claim of attorney/client privilege, and plaintiff opposed. The defendant lost, and appealed denial of its motion for a protective order. Id.

Thus, the Washington Supreme Court decided "whether postemployment communications between former employees and corporate counsel should be treated the same as communications with current employees for purposes of applying the corporate attorney-client privilege." Id. By a 4-3 vote, the court held that it did not. It characterized the attorney/client privilege as "a narrow privilege and protects only communications and advice between attorney and client" and "strictly limited to the purpose for which it exists." Id. at 1191-92 (citation and quotation marks omitted).

The ex-coaches were "former nonmanagerial employees" of the defendant . Id. at 1192. The termination of their employee/employer relationship also terminated the ability of the corporate ex-employer to claim the attorney/client privilege:

We decline to expand the privilege to communications outside the employer-employee relationship because former employees categorically differ from current employees. . . . [E]verything changes when employment ends. When the employer-employee relationship terminates, this generally terminates the agency relationship. As a result, the former employee can no longer bind the corporation and no longer owes duties of loyalty, obedience, and confidentiality to the corporation. Without an ongoing obligation between the former employee and employer that gives rise to a principal-agent relationship, a former employee is no different from other third-party fact witnesses to a lawsuit, who may be freely interviewed by either party.

Newman, 381 P.3d at 1192-93 (citations omitted).

The Washington high court was unmoved by the practical reasons why corporations embroiled in litigation find it necessary to seek information from ex-employees:

[F]ormer employees may possess vital information about matters in litigation, and that their conduct while employed may expose the corporation to vicarious liability. These concerns are not unimportant, but they do not justify expanding the attorney-client privilege beyond its purpose.

Id. at 1193.

A defendant might easily perceive itself as needing to know many things known by potential witnesses, and might strongly prefer not to share its conversations with those witnesses with the other side. . . . That alone should not be enough to justify frustrating the truthseeking mission of the legal process by extending the [attorney/client] privilege.

Id. at 1194 (citation and quotation marks omitted).

The need for "full and frank communications between counsel and the client" did not extend, the court believed to "former employees." Id. at 1193. It was enough to hold that termination of employment did not affect the pre-existing confidentiality of prior exchanges that occurred while the employment relationship lasted. Id. at 1193-94. The court imposed what it considered "a predictable legal framework," ending the privilege with termination of employment, because "it is difficult to find any principled line of demarcation that extends beyond the end of the employment relationship." Id. at 1193.

This is something of an unusual result, because ordinarily, "[u]nless waived or subject to [inapplicable] exception[s], the attorney-client privilege may be invoked . . . at any time during or after termination of the relationship between client . . . and lawyer." Restatement (Third) of the Law Governing Lawyers §77 (2000) (emphasis added). As Newman noted, other courts have disagreed with its bright-line rule. 381 P.3d at 1194 (citing In re Allen, 106 F.3d 582, 605-06 (4th Cir. 1997)). In concluding that "most" courts "grant[] the privilege to communications between a client's counsel and the client's former employees," 106 F.3d at 605, Allen cited a half-dozen cases. The rule in Allen, that "the privilege applies equally to former employees," id. at 606, has in turn been followed by quite a few more courts. See Hanover Insurance Co. v. Plaquemines Parish Government, 304 F.R.D. 494, 500 (E.D. La. 2015); Winthrop Resources Corp. v. Commscope, Inc., 2014 WL 5810457, at *2 (W.D.N.C. Nov. 7, 2014); Goswami v. DePaul University, 2014 WL 1307585, at *1 (N.D. Ill. Mar. 31, 2014); In re Refco Inc. Securities Litigation, 2012 WL 678139, at *2 (S.D.N.Y. Feb. 28, 2012); In re Flonase Antitrust Litigation, 723 F. Supp. 2d 761, 764 (E.D. Pa. 2010); Brinckerhoff v. Town of Paradise, 2010 WL 4806966, at *5 (E.D. Cal. Nov. 18, 2010); Fisher v. Halliburton, 2009 WL 483890, at *2 (S.D. Tex. Feb. 25, 2009); Wuchenich v. Shenandoah Memorial Hospital, 2000 WL 1769577, at *2 (W.D. Va. Nov. 2, 2000); Peralta v. Cendant Corp., 190 F.R.D. 38, 40-41 (D. Conn. 1999) (privilege continues as long as the attorney's inquiry pertained to "facts [the ex-employee] was aware of as a result of her employment").

By contrast, Newman cited no precedent in support of its holding that termination of employment ipso facto terminates an ex-employer's ability to claim the privilege as to further communications with its ex-employees. One wonders what might happen were the shoe on the other foot. As we pointed out in our 50-state survey of informal treating physician interviews, an informal treater interview is a big no-no in Washington State. Indeed, Newman even mentioned that rule in passing. 381 P.3d at 1192 (pointing out that the "values underlying the attorney-client privilege" had been invoked "to create an exception to the general prohibition on defense counsel's ex-parte contact with the plaintiff's treating physician"). Given this analogy, might Newman be used to argue that former treating physicians no longer in an active physician-patient relationship with a plaintiff may be contacted informally defense counsel? Sauce for the goose; sauce for the gander.

So what to do? We note that in Peralta, the court went out of its way to point out that the ex-employee "ha[d] not been retained as a consultant nor has she been claimed as under any continuing contractual duty to the defendant." 190 F.R.D. at 41. The privilege has been successfully invoked where the ex-employee had entered into a bona fide, pre-litigation consulting agreement with his/her prior employer. Weber v. Fujifilm Medical Systems, U.S.A., 2010 WL 2836720, at *3-4 (D. Conn. July 19, 2010); Dubois v. Gradco, 136 F.R.D. 341, 346 (D. Conn. 1991). So has the narrower work product protection. Hynix Semiconductor Inc. v. Rambus Inc., 2008 WL 397350, at *3 (N.D. Cal. Feb. 10, 2008). A "former employee who . . . continues regularly to consult about the matter with the lawyer for the ex-employer" is within the Restatement's prohibition against ex parte contact by the employer's adversary. Restatement 3d of the Law Governing Lawyers, §100, comment g (2000). Other case law has upheld the privilege where ex-employees were designated as non-testifying experts. United States v. Homeward Residential, Inc., 2015 WL 4610284, at *4 (E.D. Tex. July 31, 2015). Thus, establishing relationships of this sort may well be useful in maintaining the attorney/client privilege with ex-employees.

Finally, it should go without saying that any consulting/expert arrangements will protect only litigation-related communications, and cannot be used either to preclude an opponent's access to underlying factual information, or to appear to "purchase" a witness' testimony. Either of those will get an attorney, and that attorney's client, into hot water. See State of N.Y. v. Solvent Chemical Co., 166 F.R.D. 284, 289 (W.D.N.Y. 1996), as an example of what not to do.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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James Beck
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