November 29, 2020

Volume X, Number 334


Internal Investigations: Involve Counsel to Minimize Risk (Unless You Want a Fool for a Client)

It's no secret that we continue to face tough economic times. Companies have responded by reviewing their budgets and slashing costs wherever feasible—and understandably so. Employers, however, should heed the potential dangers in cutting corners when it comes to their legal budgets.

There is an old adage about lawyers who represent themselves. It's said they have fools for clients. The adage also applies to companies that try to conduct an internal investigation on their own. For instance, the cost of doing business at times involves investigating misconduct in the workplace, ranging from claims of sexual harassment or discrimination to theft of company property or loss of trade secrets. When faced with one of these potential legal matters, an employer's first instinct may be to get to the bottom of the issue itself, before or sometimes without contacting counsel. While that strategy might initially save money, the decision could come back to bite the company in the long run, especially if the dispute ends up in court.

Risks of Doing It on Your Own

Bad Facts. Typically an internal investigation begins with a person gathering facts—usually by interviewing employees. During the interviews, the investigator will probably take notes that consist of what he or she hears. The resulting "hearsay" may or may not be true, but now these written notes could appear to be statements of "fact." As a result, the employer has unintentionally created bad evidence.

The interviewer's notes might also document his or her impressions—both good and bad. Again, the employer has created evidence that would not otherwise exist and could have detrimental consequences in a subsequent litigation.

Privilege Considerations. Certain privileges can protect documents from disclosure to the other side in a litigation. Whether a case is pending in state or federal court will determine how much protection is afforded. Under Illinois law, for example, the attorney-client privilege is limited to communications with the control group, which includes anyone whose advisory role to top management is such that a decision would not normally be made without that individual's input, and whose opinion forms the basis of any final decision by those with actual authority. Likewise, the so-called work product doctrine, which protects materials prepared in anticipation of litigation from discovery by opposing counsel, generally only applies to an attorney's opinions and mental impressions. Federal law affords broader protection. But if a company fails to contact an attorney before launching an internal investigation, no privilege likely exists, making it far easier for the other side to learn an employer's game plan. A recent Illinois example underscores the substantial risks.

Bresnahan: An Employer Learns the Hard Way

In August 2010, a defendant in a lawsuit pending in the Northern District of Illinois learned a difficult lesson when it failed to contact counsel before conducting an internal investigation regarding a sexual harassment claim by a former employee. In Bresnahan v. Intuitive Surgical, Inc., Judge Robert W. Gettleman granted the plaintiff's motion to compel the production of documents that were withheld on the basis of the work product doctrine. The documents at issue were interview notes taken by a member of the defendant's human resources (HR) department, including her impressions and conclusions as a result of the internal investigation. The HR department conducted its investigation pursuant to a written company policy that required immediate investigations of all incidents of harassment.

The defendant argued that the notes were protected by the work product doctrine as codified in Rule 26(b)(3) of the Federal Rules of Civil Procedure. According to United States v. Adlman, the work product doctrine is "intended to preserve a zone of privacy in which a lawyer can prepare…legal strategies 'with an eye toward litigation.'" Although this privilege also extends to individuals enlisted by counsel to perform an investigation or aid in the preparation of litigation, the court held that the work product doctrine did not apply in Bresnahan because there was no evidence that the defendant contacted counsel or was under the direction of counsel prior to the investigation. Rather, the company's HR department conducted its investigation in the regular course of business by following its internal policies. What should the defendant have done differently?

Simple Guidelines for Internal Investigations

Below are several guidelines companies should follow when an employee issue arises that warrants an investigation:

  • Seek legal assistance;
  • Put someone in charge (preferably outside counsel);
  • Freeze all e-mails;
  • Control the flow of paper (i.e., don't put everything in writing and separate facts from speculation); 
  • Ensure that confidentiality is actually maintained; and
  • Document the reasons for the investigation.

Don't follow in the footsteps of the defendant in Bresnahan by foregoing privilege or creating bad facts when they don't otherwise exist. Instead, always involve your lawyer before launching an investigation. 

© 2020 Much Shelist, P.C.National Law Review, Volume , Number 319



About this Author

Anthony C. Valiulis, Civil Trial Litigator, Much Shelist, Chicago Law Firm

Anthony C. Valiulis is an accomplished litigator with more than three decades of experience in a broad range of state and federal civil trial and appellate matters. A principal of the firm since 1979, Tony served as Chair of the Litigation & Dispute Resolution group for more than 20 years. His practice encompasses complex business and financial litigation, concentrating in four major areas: (1) business disputes, including non-compete agreements, (2) insurance coverage, (3) appeals and (4) class action defense. Tony represents individuals, privately held companies and publicly traded...