Labor and Employment Update - Spring 2010

INTERNAL HARASSMENT INVESTIGATIONS AND ATTORNEY-CLIENT PRIVILEGE

In any discriminatory harassment case brought by an employee, the question of employer liability rests largely on whether 1) the company exercised reasonable care to prevent and promptly address the behavior at issue; and, 2) whether the employee exercised reasonable care to avoid harm, such as utilizing the available complaint procedures. Assuming for the purposes of this article that there is a clear and accessible policy in place for an employee to make a complaint, when a company is faced with a complaint of discrimination or harassment, the most critical issue becomes the ability to demonstrate that prompt remedial measures were taken to address the conduct in question. A key step in taking prompt remedial action begins with immediately commencing an investigation into the allegations.

When commencing an investigation, companies have the option of designating someone internally to conduct the investigation, such as a human resources professional or an in-house counsel, or hiring an outside investigator or attorney. When allegations involve a senior manager or a particularly egregious or sensitive case, employers should consider hiring an outside attorney with a thorough knowledge of the applicable state and federal discrimination laws to handle the investigation. In the case of an investigation led by outside counsel, there are some issues related to attorney-client privilege which should be kept in mind.

The attorney-client privilege protects confidential communications between a client and an attorney which are for the purpose of obtaining legal advice, and companies are considered “clients” for the purposes of the privilege. However, what is considered protected by the attorney-client privilege in the context of an internal investigation can be complicated. In terms of what is considered “privileged,” there is a distinction made between an attorney who has been hired to conduct an investigation of the facts as opposed to one who has been hired to advise the company about its potential risk and recommend action. The latter is generally considered privileged while the former is not. When a company intends to rely upon its investigation in order to prove prompt remedial action in defense of a future claim (and potentially call an attorney as a witness), any communications between the attorney and the company will likely be considered discoverable and not privileged. The sufficiency of the investigation is the critical issue on liability and therefore, courts have deemed that the contents of such investigation cannot be withheld on the grounds of privilege.

Based on the foregoing, employers should approach internal investigations conducted by outside counsel with the expectation that any communications could be considered discoverable and subject to scrutiny. Any attorney who would be hired is likely well aware of this fact as well. That being said, the likelihood that an employer will be able to successfully argue the affirmative defense of having exercised reasonable care to promptly prevent and address harassment is greatly increased by having an investigation conducted by a skilled attorney who understands the obligations imposed upon employers by the law.

CLASS ACTIONS MAY BE LIMITED BY AN ARBITRATION POLICY

In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., the Supreme Court ruled that the Federal Arbitration Act (“FAA”) prohibits arbitrators from imposing class action arbitration on parties when the arbitration agreement between parties is silent regarding class arbitration.

The petitioners, a group of four major shipping companies, were defendants in a series of antitrust cases filed in federal court by their customers alleging price-fixing. The shipping transactions between the petitioners and their customers were governed by boilerplate contracts containing arbitration clauses. Pursuant to these arbitration clauses, the district court sent the cases to arbitration. Petitioners challenged the propriety of sending these cases to arbitration absent an explicit agreement between the parties to arbitrate class disputes.

The Supreme Court noted that the petitioners faced a “high hurdle” under the FAA, which required them to make a showing that the arbitration panel had exceeded its powers in permitting class arbitration. Nonetheless, the Court determined that petitioners had met their burden, where the panel’s decision was not based upon any applicable body of law, but on the basis that class arbitration was favorable as a matter of public policy.

The Court then established a rule of law: under the FAA, an arbitrator cannot compel a party to submit to class arbitration unless there is a contractual basis for concluding that a party agreed to do so. The Court stressed the factual uniqueness of the case, however, since the parties stipulated that there was no agreement, contractual or otherwise, on the subject of class arbitration.

The Court also noted that there are circumstances under which an arbitrator could “infer” the consent of the parties to class arbitration, but made no determination of what would support a finding that the parties implicitly agreed to class arbitration.

A number of states, including California, have held that class arbitration waivers are unconscionable in the employment context. The Supreme Court has granted certiorari in a second case, Laster v. AT&T Mobility LLC, in which the Ninth Circuit struck a class arbitration waiver in the consumer context as unconscionable under California law. The issue on certiorari is whether the FAA preempts state law on the issue of unconscionability of class arbitration waivers.

Employers who wish to avoid class arbitration should include an explicit class arbitration waiver in their employment contracts, but be aware that the effectiveness of those waivers is still an issue before the courts. Employers should also be aware of the laws of the state or states in which they operate (or which is the subject of a choice of law clause in the agreement) as to the conscionability of class arbitration waiver clauses.

AN EMPLOYEE’S EMAIL MAY BE PRIVATE

Recently, the New Jersey Supreme Court issued an opinion in Stengart v. Loving Care Agency, Inc. considering whether an employee had a reasonable expectation of privacy in emails she exchanged with her attorney via her web-based personal email account using a company laptop. In concluding that the former employee did have an expectation of privacy, the Court analyzed the adequacy of the notice provided by the company’s electronic communications policy and the important public policy concerns raised by the attorney-client privilege.

The employee, Marina Stengart, was the company’s executive director of nursing. The company provided her with a laptop computer to conduct company business. From that laptop, Stengart could send e-mails using her company e-mail address; she could also access the Internet and visit websites through the company’s server. Unbeknownst to Stengart, certain browser software in place automatically made a copy of each web page she viewed, which was then saved on the computer’s hard drive in a “cache” folder of temporary Internet files. Unless deleted and overwritten with new data, those temporary Internet files remained on the hard drive. Stengart used the company laptop to access a personal, password-protected e-mail account on Yahoo’s website, through which she communicated with her attorney about a possible discrimination lawsuit against the company. Not long after, Stengart left her employment with Loving Care and returned the laptop and filed a discrimination suit. The employer then pulled the emails off of the laptop’s hard drive and used them to prepare a defense to the discrimination suit. Stengart argued that the emails were protected by the attorney-client privilege.

The Court found the company’s electronic communications policy did not give express notice to employees that messages exchanged on a personal, password-protected, web-based e-mail account are subject to monitoring if company equipment is used. Although the policy stated that the company may review matters on “the company’s media systems and services,” those terms are not defined. The Court also found that the prohibition of certain uses of “the e-mail system” appear to only refer to a company e-mail account, not personal accounts. Similarly, the policy gives employees no warning that the contents of personal, web-based e-mails are stored on a hard drive and can be forensically retrieved and read. Coupled with the fact that the policy permitted “occasional personal use” of e-mail, the Court found that the policy, as written, created an ambiguity about whether personal e-mail use is company or private property.

Employers should consider the wording of their email policies based on the outcome in Stengart.   At minimum, Stengart provides that employers who wish to review computer screen shots that contain emails employees send via private web-based accounts will need to provide employees with a specific and detailed notice that the company may do so. However, the Court held that, while employers may adopt and enforce lawful policies relating to computer use to protect the assets and productivity of a business, they have no basis to read the contents of employees’ personal, privileged, attorney-client communications sent via personal web-based email. The Court noted that other courts in Pennsylvania and New York have concluded that employees have a lesser expectation of privacy when they communicate with an attorney using a company e-mail system as compared to a personal, web-based account like the Yahoo account used by Stengart. As a result, courts might treat e-mails transmitted via an employer’s e-mail account differently than they would web-based e-mails sent on the same company computer.

Two weeks before the New Jersey Supreme Court ruled in Stengart, in a case called Ontario v. Quon, the Supreme Court of the United States heard argument on whether a SWAT team member has a reasonable expectation of privacy in text messages transmitted on his SWAT pager, where the police department has an official no-privacy policy but a non-policymaking lieutenant announced an informal policy of allowing some personal use of the pagers.   Although the Quon case differs from Stengart because it involves a government employee and protections under the U.S. Constitution, the Supreme Court’s ruling may provide what notices must be given to put workers on clear notice about the use of electronic equipment provided for their on-the-job use. Any insight given by the U.S. Supreme Court in Quon would be helpful to private employers in crafting or re-crafting it’s employee electronic use policies. The Supreme Court is expected to issue an opinion in Quon by the end of June.

The Labor and Employment Group represents and counsels employers in all aspects of the employment relationship, including EEO litigation, union avoidance, negotiations, arbitrations, executive compensation, corporate transactions, and non-competition/non-solicitation agreements, as well as compliance with federal and state laws such as the Family and Medical Leave Act, the Americans with Disabilities Act, the Health Insurance Portability and Accountability Act, the Fair Labor Standards Act and the Occupational Safety and Health Act.

This document is published for the purpose of informing clients and friends of Klehr Harrison about developments in the areas of labor, employment and benefits, and should not be construed as providing legal advice on any specific matters.  For more information about this publication or Klehr Harrison, contact Charles A. Ercole, Chair of the Labor and Employment Group, at 215-569-4282 or visit the firm’s website at www.klehr.com.