Washington Supreme Court Says Corporate Attorney-Client Privilege Does Not Cover Communications with Former Employees

On October 20, 2016, the Washington Supreme Court issued its 5-4 decision in Newman v. Highland School District No. 203,[1] holding that the attorney-client privilege does not cover communications between attorneys representing corporate or government entities and their former employees, even in situations where the former employees’ acts or omissions created the entity’s liability. The Court’s decision has immediate consequences for health care providers and their insurers. This alert discusses the scope of this decision and suggests possible strategies to address the problems it creates.

A. Background

Newman involved a high school football player who suffered a brain injury during a game. He alleged that his coaches ignored signs of a concussion incurred during practice, and then negligently allowed him to participate in a game the following day. By the time of the lawsuit, some of the coaches were no longer employed by the school district. In order to evaluate the claim and advise their clients, the school district’s lawyers interviewed the coaches. During discovery, the school district asserted that the attorney-client privilege covered communications between its lawyers and the former coaches concerning the events giving rise to the lawsuit. The superior court disagreed. The school district sought discretionary review, which the Supreme Court granted.

B. The Supreme Court’s Decision

Washington has long recognized that the corporate attorney-client privilege protects communications between a corporation’s lawyer and its agents, including non-management employees, involving the agent’s acts or duties that may be relevant to the lawyer’s work on behalf of the corporation. Until Newman, however, no Washington appellate court had addressed whether the corporate attorney-client privilege covers attorney communications with former employees. Nationally, there is a split of authority on this issue: the largest number of jurisdictions hold that it does,[2] while a leading legal treatise and other authorities, and a smaller number of jurisdictions, point in the opposite direction.[3]

Justice Stephens wrote the court’s opinion, which was joined by Justices Gonzalez, Yu, Fairhurst, and Johnson. The majority held that termination of the individual’s employment sets a bright-line boundary that ends any corporate attorney-client privilege. Accordingly, any communications with corporate counsel after employment therefore are not privileged, seemingly without regard to the entity’s interest in confidentially discerning the former employees’ role in creating liability. The majority justified its holding on four grounds: (1) evidentiary privileges are narrowly construed because they interfere with the truth-finding function, (2) an employer cannot compel a former employee’s cooperation with counsel after termination of employment, (3) the interests of the employer and former employee may no longer align, and (4) a bright-line test is easier to administer.

C. Implications for Health Care Providers and Their Insurers

Newman makes it more difficult for health care entities to confidentially investigate and evaluate their liabilities. Not uncommonly, a health care entity’s attorneys begin investigating liability and regulatory matters sufficiently after the fact that some knowledgeable corporate actors have moved on to other employment, have retired, or have been assigned to a different corporate unit. This circumstance is particularly common in cases involving trainees (residents, fellows, and the like) and nurses, who may change jobs frequently. Additionally, the inability to have privileged communications with former employees whose actions may have created corporate liability increases the chances of the former employee making uncounseled admissions that may be harmful to themselves or their former employers. Under Newman, absent an exception or method to “reestablish” a basis for the privilege, health care entities’ attorneys must either forego communicating with former employees altogether, and thereby accept these negatives, or accept that such communications are subject to discovery.

D. Possible Strategies/Exceptions

Two primary strategies may allow corporate counsel to engage in privileged communications with former employees. First, the attorney-client privilege should still apply where the former employee retains the corporate attorney to jointly represent him or her. Second, the privilege may apply where the former employee has a continuing duty to cooperate with the entity’s or its insurer’s liability investigation or defense. This second strategy may involve triggering provisions in insurance contracts or in employment contracts. Third, in some circumstances, the work product privilege is available where the former employee is or may be covered by insurance.

1. Joint Representation of the Former Employee

In Newman, in addition to interviewing the former employees in advance of deposition, the school district’s attorney also “represented” the former coaches at their depositions. The superior court determined that, although plaintiffs could discover communications during the interviews, which apparently occurred before counsel were “engaged” to advise the witnesses, communications occurring during the period of representation were privileged. Neither party challenged the latter aspect of the superior court’s ruling, and the Newman majority seemingly agreed it was correct.[4] Therefore, joint representation of a corporate entity and its former employees appears to be a viable method to preserve an attorney-client privilege for post-termination communications with former employees.

There are limits to this approach, however. First, joint representation must be compatible with the Rules of Professional Conduct; e.g., the interests of the clients are not directly adverse and there is not a significant risk that the lawyers’ duties to one client will be materially limited by their duties to the other.[5] Second, joint representation also would have to be squared with Youngs v. Peacehealth,[6] where the court held that counsel defending a hospital or other corporate entity cannot have any contact with a personal injury plaintiff’s treating physicians, unless they are targets of the suit or have direct knowledge of the liability-creating events. As a result, if the former employee’s involvement in the events at issue does not fit within the Youngs criteria, joint representation is not an option.

2. Former Employee’s Duty to Cooperate

The Newman majority placed significant weight on the proposition that corporate entities have no control over former employees and, correspondingly, that former employees are not obligated to cooperate with their former employers. It also alluded to a possible exception to its bright-line rule, where the former employer retains some degree of control over the former employee.[7] Not uncommonly, separation agreements include requirements to cooperate with regard to certain matters, particularly for executives or when severance payments are involved. Additionally, a duty to cooperate may be imposed on health care providers as a condition of the former employer purchasing or providing tail coverage or equivalent for physicians or other providers.

It is not certain that the Newman majority would recognize privilege under these circumstances. Additionally, this avenue seemingly would not be available for the full range of health care workers and may not be desirable with respect to some. Despite these reservations, agreements to cooperate are a possible means of preserving an entity’s ability to have privileged communications with health care providers who have separated from employment. These agreements, which could be a condition of initial employment or otherwise supported by consideration, should specify that cooperation includes providing assistance to the entity, its attorneys, insurers, and litigation consultants regarding any actual or potential liability of the entity.

3. Privileged Communications with Insurers

Washington courts have long held that an insured’s communications with an insurer regarding anticipated or actual claims are privileged under the work product doctrine.[8] Therefore, where a formerly employed health care provider has tail coverage, or the equivalent, through insurance or self-insurance arrangement, it makes sense that the health care provider can have privileged communications with attorneys and claims handlers acting on behalf of whatever entity is providing coverage, so long as the former employee is a potential or actual target of the claim. Further, the common interest privilege would allow privileged sharing of information between entities and insurers who may be jointly or severally liable on that claim.[9] If, on the other hand, it becomes clear that the formerly employed provider is not targeted, continued application of work product privilege would be problematic.

E. Conclusion

The court’s decision not to allow privileged communications with former employees creates serious problems for health care entities, for which there are a limited number of potential solutions. Of those, joint representation is, where possible, the most solid, particularly if coupled with a continuing duty of cooperation with either the former employer or insurer. In all events, matters where an entity’s legal rights and responsibilities turn on the actions or testimony of former employees require careful attention by in-house and outside counsel and others responsible for the handling of such claims.

If you have any questions regarding this decision, please feel free to contact:

Michael Madden (mmadden@bbllaw.com)

[1] 381 P.3d 1188.
[2] See, e.g., In re Coordinated Pretrial Proceedings in Petroleum Prod. Antitrust Litig., 658 F.2d 1355, 1361 n. 7 (9th Cir. 1981); Admiral Ins. Co. v. United States Dist. Ct. for Dist. of Arizona, 881 F.2d 1486, 1493 (9th Cir. 1989); Porter v. Arco Metals Co., 642 F.Supp. 1116, 1118 (D.Mont. 1986); United States v. King, 536 F.Supp. 253, 259 (C.D.Cal. 1982); Amarin Plastics v. Maryland Cup Corp., 116 F.R.D. 36, 41 (D.Mass. 1987).
[3] E.g., RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 73(2) (Am. Law Inst. 2000); MODEL RULES OF PROF’L CONDUCT R. 4.2 cmt. 7 (2002), ABA Formal Opinion 91-359 (Apr. 2, 1991); Smith v. Kansas City So. Ry. Co., 87 S.W.3d 266, 271-72 (Mo. App. 2002).
[4] 381 P.3d at 1190, n.1.
[5] Wash. Rule of Prof. Conduct 1.7.
[6] Youngs v. Peacehealth, 179 Wn.2d 645, 653, 316 P.3d 1035 (2014).
[7] “[T]here may be situations where the former employee retains a present connection or agency relationship with the client corporation that would justify application of the privilege.” 381 P.3d at 1193, n. 2.
[8] Heidebrink v. Moriwaki, 104 Wn.2d 392, 706 P.2d 212 (1985).
[9] See Sanders v. State, 169 Wn.2d 827, 843-54, 240 P.3d 120 (2010) (“common interest” doctrine allows multiple parties to share confidential communications pertaining to the common defense without waiving privilege as to others outside the group).