Maintaining Privilege With Consultants - Practical Guide

by Cozen O'Connor

building.jpgPreviously, we talked about the legal standards applied to claims of attorney-client privilege between a company's general counsel and outside consultants. Now, let's talk about practical tips for maintaining that privilege.

We explained the two different approaches that courts have taken to claims of privilege between a company's general counsel and outside consultants. The majority of courts have protected these communications if they meet the traditional requirements for application of the privilege in the corporate context, and the consultant is the "functional equivalent" of an employee. As with employees, under the majority approach, communications with consultants are privileged if, by virtue of their role, those consultants possess or have access to confidential information necessary for the provision of legal advice.

A minority of courts, however, impose the additional requirement that the consultant be hired to perform a function necessary to actual or anticipated litigation. Under this approach, even if confidential and necessary for the provision of legal advice, communications with consultants are not protected if they are hired to perform routine business functions. 

confidential1.jpgWith these standards in mind, general counsel can take a number of steps to protect confidential communications with outside consultants from disclosure.

Fundamentally, it is critical to carefully define the circumstances of the consultant's work for the company. Counsel should be heavily involved in drafting the consulting agreement during the initial engagement and, if you have a standard initial agreement, update it. Under either standard, confidential communications will only be privileged if the consultant is considered the "functional equivalent" of an employee. Courts consistently focus upon whether the consulting agreement includes characteristics that are typical of an employment relationship in deciding whether the privilege should apply.

For example, courts have found that requiring the consultant to sign confidentiality and noncompete agreements weigh strongly in favor of protecting the privilege. Similarly, managerial or supervisory control over the consultant are strong indicators that the consultant is the "functional equivalent" of an employee. Identifying which specific individuals will be assigned by the consultant to perform work for the company will also be helpful. If it is practical to do so, reserve some office space at the company for the consultant's use. Essentially, the closer the relationship between the consultant and the company, the more likely it is that a court will find the relationship to be worthy of protection.

expert3.jpgExplicitly defining the consultant's role is particularly important if the company becomes involved in litigation in a jurisdiction that has adopted the more restrictive application of the privilege. Under this standard, communications are only privileged if the consultant was hired to perform a function "necessary in the context of actual or anticipated litigation," according to In re Bristol-Myers Squibb Securities Litigation, No. 00-1990 at * 4 (D.N.J. Jun. 25, 2003). Accordingly, if a consultant's work for the company can reasonably be characterized as being related to ongoing or potential litigation, reference to that issue, or the specific litigation, should be made in the retention agreement.

In many cases, particularly where the consultant is hired in the regular course of business to provide long-term or recurring services, this may not be possible. Many times, however, companies obtain outside consultants to provide independent evaluations or public relations advice about pivotal issues that could potentially lead to litigation. Indeed, companies spend nearly $4 billion annually on public relations alone. Where reasonable to do so, it should be explicitly stated in the initial agreement, or in subsequent writings, that the consultant's work relates to an issue that could potentially be the basis of future litigation.

lightbulb.jpgDefining the consultant's role in writing is important even under the majority approach. Communications will only be privileged if they relate to confidential information shared with consultants because of their work with the company. Permitting a consultant to have access to confidential information that is not necessary to the work he or she is performing may result in waiver of the privilege. Thus, it is crucial that the consultant's role is unambiguous from the beginning and that the consultant is only allowed to access information related to that role. A clear engagement agreement that defines the consultant's role can serve as a valuable reference when deciding what information to share with the consultant as their work continues to progress.

Companies can also implement policies during the course of the consultant's work that will help protect the confidentiality of communications with counsel. Any confidential communications made for the purposes of providing or obtaining legal advice should be clearly identified. They should also be kept separate from communications that have only a general business purpose. It may be difficult for a court to later determine whether a message between corporate counsel and outside consultants is privileged if it is sandwiched between statements that are commercial in nature. Keeping legal and commercial communications separate, to the extent possible, will help avoid redaction and in camera review during later litigation.

Additionally, as with internal confidential communications, it is important to limit the dissemination of statements made by consultants to the company's general counsel. Simply including counsel on an email sent to a large number of people will not be sufficient to maintain privilege. Ideally, communications that are intended to be privileged should be made directly and privately to counsel. Counsel should take on the responsibility of following up on the information provided by the consultant. While it is not always practical to have one-on-one communications with counsel, generally limiting the number of recipients is a strong indicator to courts that the information was intended to be kept confidential.

policy.jpgEach of these elements should be included in the company's written policies for retaining and communicating confidential information to outside consultants. Counsel should be involved in drafting and reviewing the retention agreement to be sure that it includes the provisions mentioned above. Employees should be made aware of the company's policies for communicating with consultants. Those policies should be in writing and made easily available. It is impossible to anticipate whether specific communications will later become the subject of litigation or a criminal investigation. Consistently controlling the circumstances of the consultant's relationship with the company, and maintaining good communication practices throughout the consultant's engagement, are the only way to reliably protect the company's attorney-client privilege.

Make it your policy.

Originally published in The Legal Intelligencer on March 19, 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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