Employers Beware of Conducting Self-Evaluative Assessments of Compliance with Employment Laws: HR Tip of the Month

A recent case decided by a federal court in Pennsylvania serves as a reminder that a company intent on conducting an internal assessment of its compliance with applicable laws, including wage and hour laws, should carefully consider, in advance of performing that evaluation, its strategy to protect the results from potential disclosure in future litigation. In Craig v. Rite Aid Corporation, 2010 U.S. Dist. LEXIS 137773, a magistrate judge in the Middle District of Pennsylvania considered whether Rite Aid could restrict the plaintiffs’ ability to discover potentially relevant documents on the grounds that the documents were protected by the “self-critical analysis privilege,” a privilege recognized by some courts in limited circumstances “to protect evaluative materials created in accordance with governmental requirements, or for purposes of “‘self-improvement.’”

In Rite Aid, the documents sought to be protected related to the company’s voluntary internal assessment of its compliance with the FLSA, labor laws and existing bargaining agreements, initiated as part of a restructuring program led by a Human Resources executive under the direction of the company’s in-house counsel. The analysis included information-gathering, assessments, drafts, and recommended changes to store operations, all of which was shared with the in- house counsel for the purpose of obtaining legal advice and in anticipation of future FLSA litigation. Rite Aid asserted that the self-critical analysis privilege shielded the documents from production. The Court disagreed, expressing doubt as to the privilege’s validity in the Third Circuit. Even where the privilege had been recognized, the Court found it did not have widespread application where a company voluntarily undertook an internal review of its own practices and procedures. Although ruling that the defendants could not rely on the self-critical analysis privilege to protect from disclosure the challenged documents, the Court left open the possibility that other privileges, such as the attorney work product doctrine and attorney-client privilege, could offer additional protections.

As the number of wage and hour suits alleging failure to pay overtime continues to increase, it is certainly understandable why employers would want to review their payment and classification practices with an aim towards reducing litigation risk. Prior to undertaking such a review, companies should consider how to best protect the materials generated from such an internal assessment from disclosure in future litigation. The role that various individuals (Human Resources, in-house counsel, outside counsel) should play in the evaluative process, as well as the potential application of recognized privileges to the process, are factors which should be explored. 

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