When allegations of workplace discrimination or harassment surface, employers face difficult choices. Such complaints are highly volatile and typically warrant an immediate investigation. The investigation, in turn, may create the need for remedial action.

Yet, both the investigation and any remedial steps will occur against the backdrop of a possible lawsuit. And if a lawsuit is filed, the entire investigative process likely will be a target of discovery. Because of the nascent litigation threat, there is a strong temptation to involve corporate counsel in the investigative process.

But involving an attorney creates issues of its own. Although the attorney–client privilege or work–product doctrine might protect portions of the investigation or a follow–up report, the investigation still will be a target of discovery. By directly involving counsel, the employer risks disclosing potentially privileged communications that take place within the scope of the investigation.

Kaiser Foundation Hospitals v. Superior Court of San Mateo County, 98 Daily Journal D.A.R. 10359 (1998), provides guidance for employers trying to determine which portions of an internal investigation will be protected from discovery and what litigation tactics might conceivably put the contents of such an investigation at risk. With the benefit of Kaiser Foundation’s road map, employers can better determine how a workplace investigation can be conducted and still retain some benefits from the attorney–client privilege or work–product doctrine.

Prior to Kaiser Foundation, advising corporations on the discoverability of internal investigations under California law was problematic. While the federal law on this issue was substantially clarified in Upjohn Co. v. United States, 449 U.S. 383 (1981), California’s leading precedent in the area, D.I. Chadbourne v. Superior Court, 60 Cal. 2d 723 (1964), was far less enlightening.

In Chadbourne, the California Supreme Court adopted an elaborate factorial analysis to determine the confidentiality of communications an attorney obtained from a company employee. Those factors included, among many others, the employee’s status as the natural corporate representative or as an independent witness, the employee’s intent in making the communication and the employer’s intent in requiring the employee to make the communication.

With its after–the–fact focus on the employee’s status and the purported intent of all involved, Chadbourne made it difficult to determine in advance what communications with counsel would be protected and when. And for the next 30 years, the picture did not get much sharper.

Although discovery issues involving the assertion of the privilege are recurring, the actual scope of the corporate attorney–client privilege has been analyzed in only a handful of cases involving corporate investigations, and the majority of these have concerned slip–and–fall or other garden–variety personal injury actions. See, e.g., Payless Drug Stores Inc. v. Superior Court, 54 Cal. App. 3d 988 (1976); Sierra Vista Hospital v. Superior Court, 248 Cal. App. 2d 359 (1967).

To further complicate matters, another line of authority developed independently of Chadbourne and made the applicability of the corporate privilege turn on whether the attorney provided "business" or "legal" advice. Thus, if the attorney in the role of adviser or investigator was deemed to be acting in a nonlegal capacity, these cases implied that any resulting communications or reports could be discoverable. See Montebello Rose Co. v. Agricultural Labor Relations Bd., 119 Cal. App. 3d 1 (1981) (no privilege attached to communications from attorney acting as labor negotiator); Watt Indus. Inc. v. Superior Court, 115 Cal. App. 3d 802 (1981) (no privilege attached to communications from attorney acting as a business adviser).

The problem with this line of authority, as with Chadbourne, is its imprecision. The application of the attorney–client privilege or work–product doctrine once again turns on an after–the–fact assessment of the attorney’s role. Very little advance assurance of confidentiality can be gleaned from such a standard.

The more recent opinion in Wellpoint Health Networks Inc. v. Superior Court, 59 Cal. App. 4th 110 (1997), helped resolve part of this quandary. In that case, the plaintiff–employee claimed that Wellpoint had engaged in racial and retaliatory discrimination against him when it denied him a promotion. Wellpoint hired a law firm to investigate the complaints, and the firm interviewed the plaintiff’s supervisors about the background for his claims. The plaintiff subsequently sought production of the law firm’s investigative report, arguing that the employer had waived attorney–client or work–product protections when it raised its investigation as a defense to the discrimination claims.

The trial court agreed that the investigative report was discoverable, but not on the waiver ground advanced by plaintiff. Instead, the court found that the law firm had acted as the corporate fact–finder — not as its attorneys — when inquiring into the plaintiff’s complaints. This nonlegal capacity rendered the attorney–based protections inapplicable.

The Wellpoint court was troubled by the trial court’s "blanket rule" excluding attorney investigations of alleged discrimination from attorney–client and work–product protection. The court noted that an attorney who engaged in corporate fact–finding could also be called on to furnish legal advice. Therefore, "the trial court should not have given [the plaintiff] carte blanche access to [Wellpoint’s] investigative file."

Rather, the court found that application of the attorney–client or work–product protections should be determined on a document–by–document basis, with an eye toward why each document was prepared. If the document consisted of "routine fact–finding" it might be discoverable; if it provided legal advice, it could be protected. But since no record had been made on such a basis in the trial court, the Wellpoint court declined to indicate how it should be resolved for the first time on appeal. Also see Aetna Casualty & Surety Co. v. Superior Court, 153 Cal. App. 3d 467 (1984) (holding that an insurer’s hiring of an attorney to investigate an insured’s claim and to make a coverage determination is an example of a client seeking legal advice).

The plaintiff in Wellpoint also argued that the attorney–client and work–product protections had been waived because Wellpoint intended to rely on the adequacy of its investigation and the advice of its counsel in defense of the litigation. In response to this contention, the Wellpoint court noted that employers confronted with claims of harassment frequently conduct investigations to determine what, if any, remedial action is necessary. The employer then can defend any ensuing lawsuit by "pointing to prompt remedial action reasonably calculated to end the harassment."

The court also explained, however, that an employer who relies on its remedial action as a defense thereby places the adequacy of the investigation at issue. If the investigator is also the company’s legal adviser, the employer may not be able to shield the investigative process from discovery. Rather, the employer’s injection of the adequacy of the attorney’s investigation into the lawsuit can result in the waiver of any attorney–client or work–product protection that might otherwise exist.

In the course of its analysis, the Wellpoint court did not resolve what portions of an investigative file would fall outside the scope of discovery or what portions of the file might be discoverable if the employer intended to rely on the investigation. The Kaiser Foundation court stepped into this void.

In Kaiser Foundation, the hospital’s human resources consultant conducted an investigation of allegations of sexual harassment. During the course of the investigation, the consultant interviewed several witnesses and periodically obtained advice from Kaiser’s legal department about the investigative process. The consultant took notes of the conversations with Kaiser’s attorneys, and kept some of those notes in a file with his witness interviews and other investigative records. In discovery, the plaintiffs sought production of the entire investigative file.

Kaiser objected on several grounds, including attorney–client privilege and work product. Kaiser was willing to produce those documents that did not "refer or relate to communication with counsel" if the parties stipulated that such production would not constitute a waiver of the attorney–client privilege or work–product protection as to other communications with Kaiser’s attorney.

The stipulation was entered and Kaiser subsequently produced the factual portions of its investigative file along with a privilege log identifying what portions of the file were being withheld and why. After Kaiser’s production, the plaintiffs subsequently demanded that Kaiser produce all the material in its privilege log as well, on the theory that the company’s intent to rely on the adequacy of its investigation constituted a waiver under Wellpoint of any applicable privilege. Following a hearing, the trial court agreed.

In response to Kaiser’s writ, the Kaiser Foundation court held that an employer’s intent to rely on the adequacy of its investigation as a defense did not alone give rise to a waiver of the attorney–client privilege or work–product doctrine as to confidential communications between Kaiser’s nonattorney investigator and Kaiser’s attorney. Instead, where the employer had disclosed the substance of its internal investigation in discovery, the discrete communications its nonattorney investigators had with Kaiser’s attorneys could remain privileged, because disclosure of those communications was "not essential for a thorough examination of the adequacy of the investigation or a fair adjudication of the action."

The Kaiser Court acknowledged that the assertion of the attorney–client privilege or work–product doctrine would conflict with the right to discovery and that the recognition of these protections might result in relevant information being withheld. But this outcome was no different than other instances where privileges were asserted during discovery, and Kaiser therefore was entitled to withhold documents as to which its claims of attorney–client privilege or work product could be sustained.

The Kaiser Foundation opinion provides some insights for employers investigating complaints of harassment or discrimination. To begin with, Kaiser Foundation makes clear that if the employer intends to rely on the adequacy of its investigation as a defense in a lawsuit, the factual portion of its investigative file will be discoverable — whether an attorney or a nonattorney investigator conducts the investigation.

If a nonattorney investigator is used, however, his or her confidential communications with the employer’s attorney should be protected by the attorney–client privilege or work–product doctrine even if the adequacy of the investigation is placed at issue.

To make sure that the basis to apply the attorney–client privilege or work–product doctrine exists, a nonattorney investigator should adequately document each aspect of the investigative process. The factual portions of the investigative file should be kept separate from the attorney–related communications or notes, and the investigator should affirmatively indicate that these latter portions of the investigative file are intended to be confidential.

The same distinction should hold if an attorney conducts the investigation, but segregates his or her file as well. The line between nonconfidential factual material and confidential communications will be harder to draw in this instance. But as long as the employer does not directly inject the confidential portions of the attorney’s file into its defense of the litigation or otherwise indicate that it intends to rely on the "entire" investigative file, the confidential portions of the file should be protected from discovery as they would be in any other context.