Employment Law - Corporate Counsel Preparing To Defend Employment Disputes

Tuesday, November 1, 2005 - 01:00

The Editor is honored to report on the discussion among Dennis P. Duffy, Vice President and Associate General Counsel, Time Warner, and Christopher Erath Ph.D., Senior Vice President and Employment and Labor Practice Chair, National Economic Research Association (NERA), Economic Consulting, at the program Litigating Employment Discrimination and Sexual Harassment Claims 2005 presented by the Practising Law Institute. Audio and video tapes of this program, along with course materials, are available for purchase on PLI's website, www.pli.edu.

Editor: How can a company avoid hostile media coverage of employment disputes by the media?

Duffy: Public relations specialists can be very helpful as the company's representative with the media. Caution must be exercised, however, in light of the potential of waiving the attorney/client privilege with respect to background, strategic and other confidential information given to the PR specialist.

The courts are currently split on how the privilege issue will be addressed. In both Haugh v. Schroder Investment Management and Calvin Klein Trademark Trust v. Wachner, the federal courts in New York determined that communications between a public relations firm and an attorney were not protected in situations where the firm merely provided ordinary public relations advice. On the other hand, in FTC v. GlaxoSmithKline, the DC Court of Appeals determined that information shared with a public relations specialist is privileged when the specialist is part of the litigation team and the specialist's input is integral to the formulation of legal advice by the attorney.

Editor: What are some common ethical issues related to defending an employment discrimination suit?

Duffy: There are potential disqualification issues when the same defense counsel jointly represents both the corporate defendant and the individual supervisor where the employer's liability rests on a theory of respondeat superior. Ordinarily such dual representation is permissible. In some instances, however, as the facts in the litigation unfold, a conflict may later arise. For example, the corporate defendant may determine that the individual defendant engaged in the alleged impermissible conduct that is at issue in the litigation. This creates a problem for defense counsel because once the parties part ways, the individual defendant may file a motion to remove you as counsel for the corporation. For this reason, counsel wishing to represent joint parties should obtain a joint representation agreement that includes an effective waiver of conflict of interest from the individual defendants and the company before representation begins.

Opinion Number 140 issued by the DC Bar Legal Ethics Committee in 1984 offers great advice on drafting a conflict waiver. In essence, the waiver should fully inform the parties regarding the advantages and disadvantages of joint representation and the rights they are giving up by signing the waiver, specifically that by signing the waiver the parties agree that in the event of a conflict the attorney can continue to represent the company and can continue to use privileged information received from the individual to assist in representing the company.

Editor: How much information should be included in a joint representation agreement?

Duffy: Many attorneys face the dilemma of how to document co-defendants' authorization of joint representation. D.C. Bar Opinion No. 309 provides a guidepost for determining whether you have enough information in the joint representation agreement. Two factors come into play. One is the sophistication of the individual signing the waiver. The other is the obviousness of the potential conflict. If the client is sophisticated and the conflict is obvious, not as much information may be needed to have an enforceable waiver. For example, if I am representing a high level corporate officer who also happens to be an experienced employment law attorney and the corporation and the potential conflict is obvious, the letter may be quite short and still be enforceable. However, if I am representing a plant supervisor who has not dealt with an attorney until now and the potential conflict concerns a complicated indemnification issue, the letter may need to be more comprehensive and explanatory.

Editor: How should conflicts of interest issues with respect to claims by former client representatives, such as human resources professionals, be handled?

Duffy: This issue comes up when an attorney representing the company works closely with a particular management employee of the company who serves as the company's representative in assisting the attorney. Let's say that you are a counsel who works regularly with a particular division manager in defending claims against the company. If that manager leaves the company and files a wrongful discharge claim, the manager may claim that you cannot represent the company in that case because of your confidential communications with the manager during the course of your representation of the company. Cole v. Mun. Schools, decided by the Tenth Circuit Court of Appeals in 1994, represents the prevailing rule on this issue. In Cole, the firm represented the school on a regular basis, with the superintendent acting as the firm's point of contact and the management representative of the school. The superintendent was fired and later sued the school for wrongful discharge and attempted to disqualify the law firm based on his communications with the firm as part of the firm's prior representation of the school. The court said that informed consent was not required because the firm never represented the superintendent as an individual. So, in my hypothetical, the attorney would not need the division manager's informed consent.

Nevertheless, some cases suggest that a de facto attorney/client relationship could arise to disqualify the attorney in some situations. The federal court in the District of New Jersey addressed this issue in Home Care Industries, Inc. v. Murray . In Home Care, the former CEO of the company asked the attorney representing the company for advice on his personal exposure whenever there was a suit against the company. The attorney answered these questions and those related to lawsuits against the CEO. When the CEO was discharged, he moved to disqualify the firm. Notwithstanding the fact that there was no formal representation of the former CEO by the firm, the court disqualified the firm because the firm had given the CEO advice regarding his personal interests, as opposed to the company's, which created a de facto attorney/client relationship between the firm and the former CEO.

This is problematic for lawyers who do not want to alienate their CEOs or other high level executives by advising that their individual legal interests cannot be represented by the company's lawyers absent appropriate consent of the corporation. The bottom line is that lawyers must remain mindful that their client is the corporation.

Editor: Do internal investigations waive the attorney-client privilege?

Duffy: The dilemma arises whether and to what extent the privilege is waived when there is an affirmative defense that brings the investigation report into the courtroom. So let's say that a defendant claims a Faragher-Ellerth defense based on its claim that it promptly investigated a sexual harassment claim. In that situation, the investigation materials are at issue. The question is whether there is a waiver of privilege on the advice given by the attorney in connection with those materials. In New Jersey, the Dana v. Hardy case suggests that where a lawyer conducts an investigation that is part of the affirmative defense, there may be a waiver on the report and possibly on the advice given by the attorney. However, most courts that have considered the issue have stated that if you can reasonably segregate the facts and findings from the attorney's work product and legal advice, the court may find a waiver with respect to the facts and findings portion of the report, but not the attorney work product or the legal advice given.

Editor: What factors should be considered in creating a damages estimate?

Erath: The short answer is that as much information specific to the plaintiff and defendant as possible should be considered. Too often, damage estimates are based on expert reports which consider only the plaintiff's age and income before and after termination. This sort of simplistic approach ignores a variety of relevant factors, such as the defendant's pay practices and the plaintiff's employment status had he or she not been terminated, and substitutes generic government statistics which are unlikely to be accurate in any particular case.

For example, if an employee loses his or her job in a company that was not doing well, relying on economy-wide statistics on typical wage growth will not take into account the company's inability to grow wages at the government rate.

Reliance on an employee's historical wage increases also can lead to inaccurate estimates because it may be at odds with the way wages actually increase. Most employees see wages increase the most early in their careers and then they level off. Past figures may not accurately reflect what the salary would have been, but if the defendant's actual pay practices are considered, a much more accurate projection of salary can be made.

Similarly, work life tables can also provide distorted estimates of how long a plaintiff would have remained employed with a defendant because they do not indicate how long an employee would actually stay with any single company. In this case you want actual information from the defendant on how long people typically stay with the company. Proceeding in this manner allows for consideration of what layoffs may have occurred since the plaintiff left as well as when people typically leave the company for more conventional reasons such as retirement.

Editor: How should fringe benefits be factored into a damages calculation?

Erath: In many cases you'll see a damage estimate for fringe benefits cite a figure such as 30 percent of wages. This is typically based on the Chamber of Commerce survey which measures employer costs for employee benefits. However, a damage estimate should focus on the value of these benefits to employees, not the cost to employers, which can be very different. Benefits such as Medicare, workers' compensation and unemployment compensation, while real costs to an employer, are simply tax payments which do not affect damages because the employee does not lose anything from the cessation of these tax payments to the government. Even social security is a tax which the employer is required to pay, but it is not what the employee gets out of the program. Pension payments and insurance are more legitimate elements for damages. With medical insurance, you want to see if the plaintiff is being covered by another policy. If that happens, you have real data on the change of cost and can incorporate it into the calculation. For pensions, the use of costs is inaccurate because it is based on fund valuations and does not reflect what the plaintiff would have gotten out of the plan. Again, the answer is to rely on the specifics of the employer's plans instead of general government statistics.