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Litigation: Upjohn warnings and external consultants

When consultants are equivalent to employees, companies are required to warn them that privilege belongs to the company, not the individual

Corporate counsel conducting internal investigations have relatively little instruction on whether to interview the company’s third-party consultants and, if so, whether an Upjohn warning is necessary. But courts have recently addressed two related concepts:

  1. The importance of providing pre-interview Upjohn warnings to corporate employees
  2. The corporate attorney–client privilege covers consultants considered the “functional equivalent” of corporate employees

Together these concepts provide corporate counsel informed guidance when interviewing consultants as part of an internal investigation.

The Necessity of Upjohn Warnings

The typical situation arises when a governmental agency asserts misconduct against the corporation and, in response, corporate counsel conduct an internal investigation for purposes of rendering legal advice about those misconduct allegations. Under the Supreme Court’s decision in Upjohn Co. v. United States, the corporate attorney–client privilege covers counsel’s interviews with corporate employees. The privilege belongs to the corporation, and only the corporation may waive the privilege.

Corporations may later decide to waive the privilege and disclose an employee’s comments to an enforcement agency. And because of this potential intentional waiver, it is imperative that counsel provide the Upjohn warning—also known as the corporate Miranda warning—to the employees so that they know that the corporation, not the employee, holds the privilege. The Upjohn warning should specifically inform the employee that the interview is confidential, that the conversation will enable counsel to provide the corporation legal advice, that counsel does not represent the employee and that the corporation may decide to waive the privilege and disclose the conversation to third parties, including enforcement agencies. The failure to provide the Upjohn warning may allow the employee to assert in subsequent criminal or civil litigation a personal attorney–client privilege covering the interview.

Consultants as Functional Equivalent of Employees

An internal corporate investigation will inevitably encompass third-party consultants. The question arises whether the corporate attorney–client privilege covers communications between these consultants and corporate counsel. Recent cases addressing the issue hold that the privilege applies where the third-party consultant has a “significant relationship” with the organization and there is no principled basis to distinguish between the consultant and an employee. In short, where the consultant is the functional equivalent of an employee, then the corporate attorney–client privilege protects his communications with corporate counsel.

The functional equivalent of employee decisions should lead counsel to give the Upjohn warning to third-party consultants prior to interviewing them as part of an internal investigation. But should the Model Rules of Professional Conduct. Rule 1.13(a) provides that corporate counsel represent the corporation “acting through its duly authorized constituents.” This language necessarily excludes an attorney–client relationship between corporate counsel and the corporation’s constituents. And the rule’s comments explain that the term “constituents” includes officers, directors, employees, shareholders and positions equivalent to officers, directors, employees and shareholders. So, while there is a dearth of case law interpreting this rule and its comments, it is reasonable to conclude that corporate counsel may represent the corporation through a person equivalent to an employee. This conclusion comports with the functional equivalent of employee test applied for purposes of the corporate attorney–client privilege.

In sum, so long as a third-party consultant may be deemed the functional equivalent of an employee, ethical rules declare the corporate counsel represents the corporation through the consultant but not the consultant individually. And the corporate attorney–client privilege should cover the consultant’s communications with corporate counsel. Consequently, the better practice is for counsel to provide the Upjohn warning when interviewing consultants during an internal investigation.

Practice Tips

Consultants are sometimes employees, too, and counsel should consider these practice tips when interviewing consultants (and other “constituents”) during an internal investigation:

  • The Upjohn warning should inform the consultant that counsel represents the corporation, not the consultant; that the interview is confidential and conducted for purpose of counsel’s rending legal advice to the company; and that the attorney–client privilege protects the discussion.
  • The warning should specifically inform the consultant that the corporation may, in its sole discretion, choose to waive the privilege and disclose the conversation to third parties, including government enforcement agencies.
  • If given verbally, counsel should prepare and read the warning from a script to ensure consistency, and then attach the script to counsel’s interview notes or summary memorandum.
  • It is preferable to have more than one lawyer present during the interview to refute any subsequent claim by the consultant that counsel failed to provide the warning.
  • Consider asking the consultant to sign a written acknowledgement that counsel gave the warning. However, counsel should be mindful that asking a consultant to sign an acknowledgement may produce a chilling effect on his willingness to provide candid comments.
  • If the consultant asks whether he “needs a lawyer,” counsel should, consistent with ethical rules, inform him that he cannot advise him whether to obtain counsel but that he has the right to do so.

Contributing Author

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Todd Presnell

Todd Presnell is a partner in the Nashville office of Bradley Arant Boult Cummings, LLP. He is licensed in Georgia and Tennessee and represents...

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