Many companies proactively analyze employee compensation to ensure that any disparities based on race and sex can be explained. This practice is advisable for many reasons:
- To eliminate or reduce potential liability for pay discrimination by identifying and correcting unexplained pay differentials.
- To increase employee morale and trust in the organization.
- To demonstrate accountability to shareholders and others.
- To develop robust compensation strategies and programs.
Pay analyses that are prepared by or for counsel for the purpose of obtaining legal advice are generally covered by the attorney-client privilege. This privilege may be waived, however, if the confidentiality of the communication is not maintained by the client.
One drawback to conducting a preventive pay equity analysis – even with the involvement of an attorney – is the potential that the analysis could be discoverable in litigation. The release of this information can create problems for an employer if its own analysis shows unexplained disparities based on race or sex. This is especially true if the employer took no action after discovering the disparities.
Spears v. Thermo Fisher Scientific
Stephanie Spears sued her former employer, Thermo Fisher Scientific, for race, sex, and age discrimination and retaliation, and she alleged that she was paid less than similarly situated male co-workers. The suit was filed in federal court in Kansas.
During the discovery process, Ms. Spears’ counsel saw that Thermo Fisher Scientific’s annual reports referenced a pay equity study and requested that the company produce the study. Not surprisingly, the company objected on the basis of attorney-client privilege, and Ms. Spears filed a motion to compel production of the analysis.
Judge Daniel Crabtree, an Obama appointee, determined that the analysis was not privileged because it was prepared for a business purpose rather than a legal purpose. He also found that, even if the analysis had been privileged, the company waived the privilege.
Was the purpose legal or business?
Judge Crabtree found that the analysis was conducted primarily for business purposes. Thermo Fisher and the vendor it engaged to conduct the analysis executed two engagement letters for different components of the project, and only the first engagement letter specified that the vendor was retained for the purpose of securing legal advice. According to the judge, the lack of reference to a legal purpose in the second letter was significant.
He also noted that Thermo Fisher referenced the pay equity study in its Corporate Social Responsibility Report, which was posted on its website. The CSR Report stated that “the analysis was done for progressive and equitable purposes for the company as a whole, and to ensure our colleagues receive fair, competitive and equitable pay for their contributions” to the company. The CSR Report also explained that the pay analysis was conducted to “gain balanced insights for furthering our [diversity and inclusion] progress” and that by “voluntarily increasing the transparency of these disclosures, we are reinforcing our commitment to stakeholders and the continuous improvement of our D&I initiatives.” Based on these statements, Judge Crabtree concluded that the pay equity study was commissioned primarily for business purposes.
Waiver of privilege
Finally, Judge Crabtree determined that, even if the pay equity analysis had been privileged, any privilege was waived when the company published portions of it in the CSR Report.
The CSR Report contained information about the analysis itself, including that women in the aggregate earned 98 percent of the pay earned by men in similar roles, and that racially and ethnically diverse employees in the aggregate earned 99 percent of the pay earned by white employees in similar roles.
Lessons for employers
To ensure that your pay equity analyses are covered by the attorney-client privilege, you should take these important actions:
- Engage a lawyer. A lawyer must be involved in conducting the analysis or in receiving the results of the analysis. Use of outside counsel is more likely to result recognition of the privilege. If in-house counsel is involved, it should be well documented that counsel is acting as a legal advisor, and not as a business advisor.
- Document the legal purpose of the analysis. The document memorializing the work to be performed should specifically state that the analysis is being conducted for the purpose of obtaining legal advice.
- Label the analysis and all related documentation as “attorney-client privileged.”
- Treat the analysis as attorney-client privileged. The employer must maintain the confidentiality of pay equity analyses by limiting disclosure of the results and legal advice only to those members of management who have a need to know, and who have the authority to act on the legal advice provided.
- Avoid or limit disclosure. The employer should avoid publicly disclosing the fact that a pay equity analysis was conducted. If the existence of an analysis must be disclosed, the employer should not discuss any portion of the results or indicate that it was conducted for a business purpose.
