Suppose you are in-house counsel for a construction company. Your Guaranteed Maximum Price (“GMP”) is blown and the Owner has refused to execute any change orders during the Project. You know you are heading towards a claim. Within one week of substantial completion being achieved, the project manager that has managed the entire job gives his notice explaining he is leaving to work for a competitor. What do you do next? What could you have done to plan for this? In this post, I outline practical measures you can take when faced with this challenging, complex, and yet very common scenario.
Planning Measures
The best time to deal with the issue of former employees is before the employee is hired. Important provisions to be considered in employment policies and agreements include:
- Confidentiality and Protection of Company Trade Secrets. An employer, particularly in the competitive market of the construction industry, has a strong and vested interest in protecting its trade secrets and confidential business practices. Having a clearly articulated confidentiality policy in place at the commencement of employment will ensure that a corporation has a solid argument to prevent or delay its adversary from receiving information possessed by its former employee. The more specific the description of confidential material is and the greater care utilized to safeguard the information, the more likely the information may be protected.
- Cooperation and Duty to Preserve Corporate Privilege. A cooperation clause states that an employee has a duty to cooperate in the employer’s claims, investigations, and communications with corporate counsel. The clause may be drafted to extend beyond the period of employment regarding the information known and acquired during the term of employment.
- Restrictive Covenants. Restrictive covenants include non-competition, non-solicitation, and non-disparagement clauses. In appropriate circumstances, especially where an employee is known to be a “key employee,” these clauses can provide an employer with additional layers of protection with its former employees.
Litigation Consulting Agreements with Former Employees
Even with the best planning measures in place, a former employee still knows what she knows – good or bad. Consulting agreements which seek to establish confidential and privileged communications are often used to mitigate these risks. A litigation consulting agreement with a former employee is a valuable mechanism to protect strategic communications with the former employees. The following are important clauses for such an agreement:
- Identify the Litigation. The litigation, whether anticipated or filed, should be identified with particularity.
- Clearly articulate the consultant’s responsibilities and scope of work.
- Insert an unambiguous statement that the former employee’s consultation work is confidential and may not be disclosed to any third party.
- Preservation obligation. The litigation consulting agreement should include an obligation to gather and provide any information relevant to the litigation to corporate counsel and not to destroy information.
- Privilege. In addition to confidentiality, the agreement should state that the communication is protected by the attorney client privilege, work product doctrine, and (if applicable) common interest doctrine.
- Reasonable Compensation. Compensation for the consulting services must be identified. In most instances, the services will be paid based upon the consultant’s normal hourly rate. Because of the prohibition on paying for or improperly influencing testimony, careful attention must be made to ensure that the former employee is not being compensated for fact testimony.
“Upjohn Warnings” in Interviews with Former Employees
Because former employees are not typically clients, think carefully about the extent to which informal interviews can be protected by the attorney-client privilege or the work-product doctrine. In Upjohn v. United States, the United States Supreme Court resolved a circuit split by holding that attorney-client privilege applies beyond a relatively small “control group” of executive employees. 449 U.S. 383 (1981). Instead, the Court held that communications between an attorney and corporate employees would be privileged if they: (1) were made to the corporation’s counsel, acting in counsel’s legal capacity; (2) were made at the direction of management for the purpose of obtaining legal advice for the corporation; (3) concerned matters within the scope of employment; and (4) were made with the employees’ understanding that they were being questioned for the purpose of obtaining legal advice for the corporation. Notably, the Court in Upjohn expressly declined to decide whether the protection extended to a corporation’s former employees. Id. at 394-95. Before beginning any interview, consider giving the former employee an “Upjohn warning”. A suggested Upjohn warning, as recommended by the White Collar Crime Committee of the American Bar Association’s Criminal Justice Section is:
I am a lawyer for or from Corporation A. I represent only Corporation A, and I do not represent you personally.
I am conducting this interview to gather facts in order to provide legal advice for Corporation A. This interview is part of an investigation to determine the facts and circumstances of X in order to advise Corporation A how best to proceed.
Your communications with me are protected by the attorney-client privilege. But the attorney-client privilege belongs solely to Corporation A, not you. That means that Corporation A alone may elect to waive the attorney-client privilege and reveal our discussions to third parties. Corporation A alone may decide to waive the privilege and disclose this discussion to such third parties as federal or state agencies, at its sole discretion, and without notifying you.
In order for this discussion to be subject to the privilege, it must be kept in confidence. In other words, with the exception of your own attorney, you may not disclose the substance of this interview to any third party, including other employees or anyone outside the company. You may discuss the facts of what happened but you may not discuss this discussion.
Do you have any questions?
Are you willing to proceed?
See generally Upjohn Warnings: Recommended Best Practices when Corporate Counsel Interacts with Corporate Employees, A.B.A. WCCC Working Group, July 17, 2009. The recommended practice is for an attorney giving the Upjohn warning to provide the warning from a prepared script prior to beginning the interview and to make a record noting that the warning was given consisting of handwritten notes (at a minimum) or a contemporaneous memorandum of the interview. Whether the attorney uses the ABA’s suggested warning or not, it should include the following elements:
- an unambiguous statement that the investigating attorney represents to corporation — not the former employee;
- a clear statement that the purpose of the interview is to provide legal advice to the corporation — not the former employee;
- a statement that the corporation regards the interview as confidential, privileged, and that the former employee should not disclose the substance of the interview;
- a notice that the privilege belongs to the corporation alone, and that the corporation may choose to waive privilege at any time and without notice to the former employee.
Conclusion
Well thought out employment agreements, litigation consulting agreements, and Upjohn warnings are a few tips that can mitigate the stress associated with key witnesses who are former employees. While there are many more strategies, particularly when former employees are contacted by your adversary or deposed, these tools will lay a solid foundation to preserve necessary confidentiality and privilege of your corporate client.
