Symptoms of the Great Resignation: Best Practices For Claims and Litigation With Key Trial Witnesses Who Are Former Employees

April 4, 2023 Construction Law Corner

Unexpected soil conditions knocked the project off course from the start, and labor and material shortages, design discrepancies, and change order disputes have plagued it ever since. The project is more than a year late, and you will lose significant sums unless you prevail in the prosecution and defense of claims. Just when you thought things could not get any worse, they do: the executive who negotiated the construction contract quits, and your senior on-site manager leaves with him. Your key witnesses are now former employees. This scenario has become more common since the start of the pandemic. The “Great Resignation” has wound its way through the workforce nationwide and has hit the construction industry, which was already experiencing a workforce crunch before the pandemic, particularly hard. Nearly all construction project participants have seen key personnel resign, retire, or run for greener pastures in recent years.

When key witnesses are former employees, construction stakeholders and attorneys face hurdles marshalling evidence for trial. Good construction lawyers win claims and lawsuits by telling a compelling story in a credible way. Key witnesses help them do this by identifying and describing critical events and documents, explaining technical issues, and conveying their impressions of the opposing parties’ arguments and witnesses. Key witnesses become even more important if the claim turns into a full-fledged lawsuit or arbitration, as their testimony informs settlement decisions and often determines the outcome of arbitration or litigation. Complications arise when key witnesses are former employees. A corporation cannot force its former employees to cooperate in claims and litigation. Many refuse to cooperate or minimize their role to distance themselves from litigation. A disgruntled few even attempt to actively assist opposing parties. And when a former employee does agree to cooperate, the corporation faces a minefield of evidentiary considerations related to the attorney-client privilege whenever it communicates with its former employees. Because employee departures are inevitable, this article offers guidance to help construction stakeholders and attorneys navigate claims and disputes with key witnesses who are former employees.

Navigating The Attorney-Client Privilege With Former Employees 

The protection and continuation of the attorney-client privilege is crucial when a key witness departs an organization. The attorney-client privilege protects confidential communications between a client and lawyer made for the purpose of seeking or providing legal advice. It applies to the client, the lawyer, and agents of the client of the client or lawyer. Although all U.S. jurisdictions agree that corporations enjoy the protection of the attorney-client privilege, they disagree on whether lower-level employees and former employees fall within the attorney-client relationship such that the privilege may apply to their communications with counsel. If the law of the controlling jurisdiction does not apply the attorney-client privilege to communications between former employees and corporate counsel, then any communications between former employees and counsel may be discoverable, and counsel must take caution whenever it seeks assistance or information from the former employee. Therefore, counsel must first determine the applicable law.

Historically, courts applied the “control group” test to determine corporate privilege claims. The control group test likens the corporate client to the traditional, individual client and only grants the privilege to those who can seek and cause the corporation to act on legal advice (i.e. the corporation’s “control group”). Most jurisdictions have abandoned the control group test, but some states, like Illinois, continue to apply it. Under Illinois’ modified control group test, the corporate client consists of two tiers of employees: (1) top management and (2) those who directly advise top management. See Midwesco-Paschen Joint Venture for Viking Projects v. Imo Industries, Inc., 265 Ill. App. 3d 654, 658 (Ill. App. Ct. 1994). Former employees fall outside of both tiers and are therefore not covered by the attorney-client privilege. As one court applying Illinois law explained, ”[f]ormer employees are not the client. They share no identity of interest in the outcome of the litigation. Their willingness to provide information is unrelated to the directions of their former corporate superiors, and they have no duty to their former employer to provide such information.” Clark Equip. Co. v. Lift Parts Mfg. Co., No. 82 C 4585, 1985 WL 2917, at *12 (N.D. Ill. Oct. 1, 1985). Hiring a former employee as a litigation consultant—even a 25-year company veteran and  company executive—does not change the outcome of the privilege analysis in a control group jurisdiction. See Barrett Industrial Trucks, Inc. v. Old Republic Ins., 129 F.R.D. 515 (N.D. Ill. 1990). In Barrett, the Court found that corporate counsel’s communications with the corporation’s former vice-president of finance, who was a key fact witness hired as a litigation consultant, were not protected by the attorney-client privilege and forced him answer deposition questions asking about his communications with the corporation’s counsel in preparation for the deposition. The only circumstance where the privilege may apply to former employees under the “control group” test (emphasis on may, as the circumstances are exceedingly narrow and rare) is if the former employee forms an independent attorney-client relationship with the corporate counsel. See Buckman v. Columbus-Cabrini Medical Center, 272 Ill. App. 3d 1060 (1st Dist. 1995).

The United States Supreme Court rejected the control group test in Upjohn v. United States, 449 U.S. 383 (1981). Most courts now apply the Supreme Court’s reasoning in that case to corporate privilege claims, including those involving former employees. The Upjohn Court criticized the control group test for placing too much emphasis on an employee’s position in the corporate hierarchy and for failing to acknowledge that the privilege also exists to protect the supply of information to the attorney such that he or she can provide fully informed legal advice. Id. at 390-391. Although it “declined to lay down a broad rule”, it did set forth a five-factor test to guide lower courts. The Upjohn test focuses on the subject-matter of a communication to determine corporate privilege claims. Under the Upjohn test, a communication between counsel and any corporate employee is generally privileged if:

  1. The information is necessary to supply the basis for legal advice to the corporation and “control group” management directed the communication;
  2. The information was not available from “control group” management;
  3. The communication concerned matters within the scope of the employee’s duties;
  4. The employees were aware that counsel was questioning them for the corporation to obtain legal advice; and
  5. The communications were considered confidential when made and kept confidential.

Courts disagree on whether that test applies to former employees. The Upjohn majority passed on deciding the issue. However, in a concurring opinion, Chief Justice Burger recommended a general rule that would apply to both current and former employees, “at least when [they] spea[k] at the direction of management with an attorney regarding conduct . . . within the scope of employment.” Id. at 402-403. Most courts have followed Justice Burger’s lead and apply the privilege to communications between former employees and corporate counsel, provided the communications concern matters that were within the scope of the former employee’s employment. See, e.g. Peralta v. Cendant Corp., 190 F.R.D. 38 (D. Conn. 1999) (holding the attorney-client privilege applied to communications between counsel and former employees concerning matters within the scope of the former employee’s employment but not to their communications about which the former employee had no independent, employment-based knowledge, such as communications between corporate counsel and the former employee involving the deposition testimony of other witnesses). Therefore, in those jurisdictions following the guidance of Justice Burger’s concurring opinion, counsel may discuss matters that were within a former employee’s scope of employment after such employee’s departure without worrying about waiving the attorney-client privilege, but if the communications extend beyond such parameters, the attorney-client privilege will not apply.

Unfortunately, the courts applying the guidance of Upjohn’s majority opinion to privilege claims involving former employees have been anything but uniform. Some adopt a narrower approach and reach conclusions like the courts in “control group” states. See, e.g.,  Infosystems, Inc. v. Ceridian Corp., 197 F.R.D. 303 (2000); Newman v. Highland School District No. 203, 186 Wash.2d 769, 780 (2016) (privilege did not extend to post-employment communications between school district counsel and former school district employees). These courts reason that the agency principles underlying the application of the attorney-client privilege in the corporate setting do not apply to former employees. “[A corporate client] can require its own employees to disclose facts materials to their duties . . . to counsel for investigatory or litigation purposes. But everything changes when employment ends. When the [employment] relationship terminates, this generally terminates the agency relationship. As a result, the former employee can no longer bind the corporation and no longer owes duties of loyalty, obedience, and confidentiality with the corporation.” Highland School District at 780-81 (citing Infosystems). Further complicating matters, many jurisdictions have never addressed the question. Although cases in these jurisdictions present the opportunity to persuade the court to adopt a more liberal interpretation of Upjohn, it is impossible to predict how they will respond, and counsel should assume the court will apply a narrow approach.

As such, counsel must determine the law of the controlling jurisdiction before it decides whether and how to involve former employees who are key witnesses in claim preparation and litigation activities. If the jurisdiction applies a variant of the “control group” test or a narrow approach to Upjohn, corporations and counsel should assume any communications with former employees will be subject to disclosure. If the jurisdiction applies the approach to Upjohn followed by most courts that have addressed the issue, communications with former employees may be protected if they concern matters relating to the former employee’s conduct and knowledge during their employment.

A state-by-state and jurisdiction-by-jurisdiction guide to whether the attorney-client privilege extends to communications with former employees is beyond the scope of this article. However, the table below outlines the controlling test, as of this publication, in a handful of jurisdictions where this firm has on-going litigation.

State

Test Applied

Illinois

Modified Control Group Test – Although state courts have not specifically addressed the issue, federal courts applying Illinois law have declined to extend the privilege to communications between corporate counsel and former employees.

Indiana

Upjohn / Subject-Matter – Although state courts have not addressed the issue in depth, in an unreported opinion, a federal district court held that former employee’s communications with the corporation’s counsel were privileged Cool v. BorgWarner Diversified Transmission Prod., Inc., No. IP 02-960-C(B/S), 2003 WL 23009017, at *2 (S.D. Ind. Oct. 29, 2003) (citing Chief Justice Burger’s concurrence and the Fourth Circuit’s decision in In Re Allen).

Texas

Upjohn / Subject-Matter Test – To our knowledge, Texas state courts have not specifically addressed the issue. However, Texas courts have applied a flexible approach to the corporate privilege in other settings, and federal district courts in Texas have extended the privilege to communications between a former employee and corporation’s counsel. Fisher v. Halliburton, No. CIV.A. H-05-1731, 2009 WL 483890 (S.D. Tex. Feb. 25, 2009).

Tennessee

Upjohn / Expanded Subject-Matter Test – Because Tennessee courts have applied a flexible approach to corporate privilege in other contexts, such as treating third parties as the functional equivalent of employees in some situations, Tennessee courts will likely extend the privilege to former employees.

Arizona

Upjohn / Subject-Matter Test – Although Arizona courts have not specifically addressed the issue, because Arizona courts employ a functional approach to the attorney-client privilege, which looks to the nature of the communication, Arizona courts would probably extend the privilege to communications with former employees.

In some cases, communications between counsel and former employees that are not covered by the attorney-client privilege may be protected under the work product doctrine. The work product doctrine protects documents and other materials prepared in anticipation of litigation. Generally, counsel’s communications about “legal conclusions or legal opinions that reveal the defendant’s strategy” are protected by the work product doctrine, even if those communications were made to former employees. Cendant Corp., 190 F.R.D. at 41. In some ways, the work product doctrine is broader than the attorney-client privilege, as it may protect information even if the communications at issue do not qualify for the protection of the attorney-client privilege. See Old Republic Ins., 129 F.R.D. at 519 (requiring former employee hired as litigation consultant to answer questions concerning pre-deposition communications with counsel but precluding questions that “seek to elicit . . . the specific questions . . . counsel has asked him, or even the area of the case to which counsel directed the majority of the questions.”) But it is narrower in other, crucial ways, in that the work product doctrine arises only in anticipation of litigation, can be overcome if the opposing party shows substantial need, and can be waived. Accordingly, corporations and counsel should take caution before relying on the protections of the work product doctrine.

Other Concerns To Address When Working With Former Employees

Issues concerning the attorney-client privilege are not the only complications that arise when key trial witnesses are former employees. A former employee may be unwilling to cooperate, be impossible to locate, and/or reside outside the range of the subpoena power. Alternatively, a corporation may face spoliation claims if a former employee departs with relevant materials stored on their personal phone or computer, or if the company inadvertently deletes relevant information from their departing employees’ corporate devices. Also, opposing counsel may attempt to contact and interview former employees, as ethical prohibitions against ex parte contact change upon an employee’s departure.

Practical Steps To Encourage Cooperation and Navigate Privilege Issues

Employee Handbooks and Agreements

The best time to address all these issues is at the start of the employment relationship. A corporation can maximize its ability to secure cooperation and to protect and control privileged information if it addresses the issues in employee handbooks and agreements. At a minimum, the following provisions should be addressed:

  • A cooperation clause should state that employees have a duty to cooperate in the employer’s claims, investigations, suits, and communications with counsel. It should also prohibit employees from voluntarily assisting the employer’s potential adversaries and require the employee to notify the employer within 48 hours after an attempt by opposing counsel to contact them or upon receipt of a subpoena;
  • Confidential/Privileged Information. A confidential/privileged information clause should require the employee to safeguard confidential and privileged information. The written warning alone may discourage inadvertent disclosure. Further, having a written policy in placed may support the corporation’s future claims related to privilege, work product, and protection of trade secrets, as it shows the corporation’s intent to maintain confidentiality with respect to such information;
  • Continuing Obligations. Certain employee obligations, such as those related to cooperation and confidential/privileged information, should be drafted such that the employee’s obligations to continue after the employment relationship ends with respect to information known or acquired during their employment.
  • Communication Protocol. A corporation’s communication protocol should prohibit employees from making work-related communications through personal emails and text messages and require departing employees to return all employer property and records (and execute a verification upon the return of such property and information). This may prevent spoliation of evidence and make it much easier to collect relevant information in discovery.
  • Non-disparagement. The non-disparagement clause should prohibit employees from disparaging the company in public or private. Depending on an employee’s role within the corporation, corporations should consider including other restrictive covenants, such as non-compete and non-solicitation clauses, in employee handbooks or agreements.

Written policies, like contracts, must be managed. Therefore, corporations should use exit interviews as an opportunity to remind soon-to-be former employees of their continuing obligations and, to avoid a future goose chase, obtain updated contact information (including personal cell phone and email address).

Although employee handbooks and agreements may promote cooperation and increase the likelihood that communications with former employees will be protected from disclosure, it is always best practice to assume communications with former employees will be subject to disclosure. In addition, to establish the record and avoid thorny ethical issues, counsel should open any interviews and discussions with former employees with an Upjohn warning to explicitly address the five-factor test and make clear that the attorney-client privilege belongs to the corporation, not the former employee, and that the company alone has the ability to waive the privilege.

Litigation Consulting Agreement

For those thinking, “Fine advice. I know the steps to take in the future, but I have an employee departure now!” – you are not out of luck. Companies can address cooperation concerns and lay the groundwork for privilege claims by entering into a litigation consulting agreement with former employees. In addition to addressing cooperation and protecting confidential and privileged information, a litigation consulting agreement should define the consultant’s scope of work and provide for reasonable compensation. The agreement should make clear that the corporation is paying the employee for their time but that their testimony is outside the scope of the agreement. This is necessary because it generally acceptable to pay a witness for their time, but not their testimony. Moreover, influencing testimony is both illegal and unethical, and courts may construe the consultant agreement as a strategy to obtain favorable testimony or to prevent disclosure of relevant information. The former employee’s billing rate must be reasonable, meaning it should be based on the consultant’s normal hourly rate or a customary rate for such services.

In certain jurisdictions, a litigation consulting agreement with a former employee who is a key witness is necessary to support claims concerning the attorney-client privilege or work product doctrine. In many cases where courts have applied the attorney-client privilege to former employees, the corporation and former employee had entered into a bona fide litigation consulting agreement. See, e.g., Weber v. Fujifilm Medical Systems, U.S.A., 2010 WL 2836720, at 3-4 (D. Conn. July 19, 2010). And in cases where courts have not applied the attorney-client privilege to former employees, they often go out of their way to point out the fact that the former employee “ha[d] not been retained as a consultant nor has she been claimed as under any continuing contractual duty to the defendant.” See Cendant Corp., 190 F.R.D. at 41. However, a litigation consulting agreement probably won’t move the needle in control group states like Illinois. Said another way, if a former employee is a key fact witness, a consulting agreement will not convert them into a member of the corporation’s control group. Even then, however, a consulting agreement may provide ammunition to support claims concerning the work product doctrine. For example, the Court in Old Republic Ins. rejected a corporation’s privilege claims over communications between corporate counsel and a former vice president of finance hired as a litigation consultant and required the former vice president to answer deposition questions concerning his pre-deposition communications with the corporation’s counsel, but under the work product doctrine the Court precluded questions that “seek to elicit . . . the specific questions . . . counsel has asked him, or even the area of the case to which counsel directed the majority of the questions.” 129 F.R.D. at 519.

Building A Favorable Project Record During Construction

                As a general matter, there is simply no substitute for a detailed and favorable project record. While obtaining positive testimony from a former employee may be powerful, it is not credible without contemporaneous support. Although detailed advice regarding project documentation is beyond the scope of the article, all construction stakeholders should position themselves for success by recording key facts on consistent basis and setting forth their interpretations of the contract and theories of entitlement or defense throughout the construction process.

Conclusion

Construction stakeholders and their lawyers must overcome significant hurdles when their key witnesses are former employees. However, by understanding the applicable  rules and maintaining well-crafted employee handbooks, employee agreements and litigation consulting agreements, they can  overcome these hurdles and put themselves in the best position to tell a winning story.

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