(Originally published Oklahoma Bar Journal January 8, 2000 - Vol. 71; No. 2) 

Ethics and Discovery Issues After
Faragher and Ellerth
By Mark Edgar Hammons

Faragher v. City of Boca Raton, 524 U.S. 775, 118 S.Ct. 2275, 141 L.Ed.2d 662 (1998) and Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 118 S.Ct. 2257, 141 L.Ed.2d 633 (1998) announced a new affirmative defense (hereafter referred to as an Ellerth defense) which defense:

comprises two necessary elements: (a) that the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (b) that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise...

Ellerth, 118 S.Ct. at 2270.

The first prong of this defense is "that the employer exercised reasonable care to prevent and correct promptly" the offensive behavior. Because the duty to "correct promptly" is an essential part of the defense, the investigation conducted by the employer into complaints of harassing or discriminatory conduct takes on special importance in each case.

This, in turn, raises critical issues regarding defense counsel's role in the investigatory process and the scope of discovery that may now be allowed regarding such investigations.

Ethical Considerations In Conducting Investigations

To have a defense, the employer must promptly and effectively investigate the claims and thereafter take appropriate action. This seems like a simple enough task, but pitfalls abound if the Defendant conducts the investigation through an attorney.

Generally speaking, an attorney may conduct an investigation and such investigation will usually be shielded by the work-product and attorney-client privilege doctrines. The leading case on the application of these two doctrines in a corporate setting is Upjohn Co. v. United States, 449 U.S. 383 (1981). Upjohn holds that the attorney-client privilege extends to "communications concern[ing] matters within the scope of the employees' corporate duties, and the employees themselves were. . . aware that they were being questioned in order that the corporation could obtain legal advice."1 This privilege belongs to the corporation and not to the individual employees being interviewed.2

Nonetheless, it can be expected that in many investigations the corporate employees will have personal interests that will conflict with that of their employer and that they will seek and expect the corporate counsel to provide them with advice. Whatever the temptation, corporate counsel cannot serve both as the agent of the corporation and the counselor to such employees. "Loyalty is an essential element in the lawyer's relationship to a client."3 In an investigation, the attorney is acting on behalf of the corporation. As such the attorney cannot provide advice regarding the employee's personal interests or concerns. Rule 4.3 of the Oklahoma Rules of Professional Conduct provides that:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. A lawyer shall not give advice to such person other than the advice to secure counsel, if the interests of such person are, or have a reasonable possibility of being, in conflict with the interests of the client.

While some conflicts can be waived, a lawyer may never serve as an advisor for the employee if the employee's and the corporation's interests are truly adverse.4 "[W]hen a disinterested lawyer would conclude that the client should not agree" to waive the conflict, "the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent."5

An attorney serving as an investigator can avoid such conflicts only by being explicit in his or her communications that the representation is not of the corporate employee, but of the corporate entity. The attorney must provide no personal advice to the employee other than advice that the employee should secure his or her own counsel.

Even following this standard strictly will not end the ethical dilemmas.

Because a proper investigation is a necessary part of the corporation's defense,6 both the fact and the content of that investigation are likely to be discoverable even against a claim of attorney-client or work product privilege. Of course, neither the attorney-client nor work-product privilege will shield against disclosure of any of the facts learned by the attorney,7 but even the attorney's impressions and conclusions are likely to be discoverable when the attorney investigates a claim of discrimination. Some courts have found that such investigations are discoverable because the investigations are conducted for business purposes rather than primarily for the purpose of securing legal advice.8 This conclusion seems suspect in light of Upjohn's explicit recognition that an investigation is a proper aspect of an attorney's duty to "ascertain[] the factual background and sift[] through the facts with an eye to" giving proper legal advice.9 The more appropriate basis for setting aside the privilege is that privileges cannot be used both as a "shield and a sword."10 In this context, the fact of an investigation will not suffice; it must also be shown that the investigation was reasonable, thorough and that the conclusions gave rise to appropriate action. For instance, one of the things an investigator must do is to make credibility determinations. "If there are conflicting versions of relevant facts, the employer will have to weigh each party's credibility. Credibility assessments can be critical in determining whether the alleged harassment in fact occurred."11 Thus, an employer who relies on an investigation as a defense will not be successful in asserting a privilege against full disclosure.12

Furthermore, the attorney who conducted or assisted in the investigation is likely to be listed as a witness in the lawsuit with the result that the attorney, and, in some circumstances, the firm would be disqualified from conducting the litigation.13 Having the attorney appear as a witness may prove particularly disadvantageous. Attorneys are rightfully viewed as advocates rather than neutral arbiters, but for an investigation to be considered adequate it must be "fair." In this regard, investigations should be conducted by someone who is not biased and is not seeking a predetermined outcome.14 While the corporation's attorney is unlikely to be deemed impermissibly biased merely by virtue of his employment and status, an inquiry into potential bias will almost certainly be allowed. Such discovery could easily turn into a searching investigation into the past relationship between the attorney, the firm and the employer with a view to establishing that the investigator -- and therefore the investigation -- was biased.15 An attorney should be concerned that opening up this area further implicates issues of attorney-client confidentiality as to past transactions and, even if the privilege is upheld, will create a substantial strain on the existing attorney-client relation.

Apart from these considerations, there is another risk though not strictly an ethical one.

The Fair Credit Reporting Act16 specifically includes investigations for employment purposes including decisions as to whether or not to impose discipline.17 This Act will apply to investigations by persons not themselves employees of the business, so private counsel must be careful regarding the application of this statute. The most likely exemption from coverage will be based on the assertion that the lawyer or firm does not "regularly engage" in this activity.18 It is not clear how often a law firm would have to assist in investigations to meet the "regularly engages" test, so this can be a dangerous claim. If the attorney or firm is found to be a consumer reporting agency stringent disclosure and consent requirements will apply to the investigation19 and the failure to comply with the Act may result in liability for actual and punitive damages.20

All of these factors counsel that, at the least, great caution should be exercised before an attorney undertakes to serve as the investigator for an employment discrimination complaint.

DISCOVERY CONSIDERATIONS

Discovery in employment cases is already broad. Nonetheless, the new Faragher/Ellerth defense is likely to make the scope of discovery broader still.

A defendant who asserts an Ellerth defense will have a difficult time claiming that training, investigations and discipline regarding other complaints is beyond the scope of discovery. In the context of discovery related to an employer's anti-discrimination policies, it was clear even before Ellerth and Faragher that the mere existence of a policy was not a per se defense to a claim of discrimination. See Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 72 (1986).21 With the creation of the new affirmative defense, the policy and how the policy applies will be a matter directly at issue. Indeed, the Supreme Court's recent decision in Kolstad v. American Dental Ass'n, ___ U.S. ___, 119 S.Ct. 2118 (1999) makes the application and use of such a policy a prominent factor in whether the corporate entity will be liable for punitive damages. Even under the punitive damage standards of Kolstad the Tenth Circuit has held that a "written policy against discrimination. . . is not enough" to automatically avoid punitive damage liability.22

The questions under the new defense are, therefore, not merely whether a policy exists but whether it is adequate as it is applied and whether an employee's failure to use the policy was reasonable or unreasonable. Even as a purely objective standard, this inquiry requires examination from two different perspectives. First of all, is the policy as applied effective in preventing and correcting discrimination? Secondly, would the policy reasonably appear to employees to be adequate and effective? These inquiries will overlap to a degree because a policy cannot likely be actually effective to prevent future harassment unless it is perceived to be effective. This means the policy must not only be communicated to the employees but also that there must be some effort to make sure that the employees understand the policy and are made aware that the policy is actually enforced.

A variety of factors may result in finding that a written policy is insufficient either on its face or as applied. In Vinson the policy was insufficient because "the general nondiscrimination policy did not address sexual harassment in particular [and because it] required an employee to complain first to her supervisor [who] was the alleged perpetrator."23 In Faragher:24

the City had entirely failed to disseminate its policy against sexual harassment among the beach employees and.., its officials made no attempt to keep track of the conduct of supervisors... [T]he City's policy did not include any assurance that the harassing supervisors could be bypassed in registering complaints...

The Tenth Circuit has recently emphasized that the failure to make a "good faith effort to educate [the corporation's] employees" regarding anti-discrimination statutes warrants holding the business liable for punitive damage awards.25 Thus, determining whether a policy is effective requires looking at the policy and looking at a myriad of other issues such as whether the employer keeps records of internal complaints, how capable the employer is of retrieving that information, how those records are maintained, the method of investigation, how long the process takes, the percentage of complaints determined to be founded, the corrective actions taken, the ultimate treatment of the complaining parties, and the extent to which corrective action is communicated not only to the complaining party but to the business's employees as a whole. Each of these matters is potentially relevant to whether the policy is objectively effective.

Because the issue for the defense is the effectiveness of the policy and not the proof of discriminatory intent, how the employer treats other forms of discrimination may be relevant to an employee's decision to use or not use the system. For instance, if the employer routinely harasses and retaliates against persons who file worker's compensation claims, it may be reasonable for an employee to conclude that he or she would be equally retaliated against for complaining of race, gender or other forms of discrimination. Thus, while proof of discrimination against women does not translate into proof of discrimination against racial minorities -- and thus race discrimination may be irrelevant to a gender case -- the analysis is different when the question is the effectiveness of a policy which presumably precludes both race and gender as well as other discrimination. Thus, discovery as to the general handling of discrimination or harassment claims may be relevant and appropriate in determining whether the policy is effective and whether an employee was reasonable in not following that policy.

Counsel for both sides should bear in mind that the employer's policy may actually be effective and an employee might still be reasonable in not using the system. If, for example, the complaining parties and co-workers as a whole are never informed of corrective actions, it may be reasonable for an employee to perceive that the system is ineffective because complaints are made without any apparent results. In such a case the employee may perceive that using the system would be futile. Keeping the entire process -- complaints, investigations and results -- secret is unlikely to solve this problem. If sexual, racial or other harassment is taking place, employees beyond the complaining party are likely to know of these acts even if they do not know of the complaint, the investigation or the discipline. Again, employees may view the process as ineffective because they see the improper acts occur, but never know of complaints or corrective actions.

Thus information as to the manner and mechanism of the investigation, the training of investigators and the communication of both the policy and the application of the policy may well be admissible at trial in determining what was "reasonable under the circumstances"26 because how the employer has acted in analogous settings is capable of helping to decide that issue. As explained in Old Chief v. United States, 519 U.S. 172, 117 S.Ct. 644, 649 (1997), to be admissible as relevant the fact must merely be "a step on one evidentiary route to the ultimate fact." "Evidence need not prove conclusively the proposition for which it is offered, nor make the proposition appear more probable than not, but it must in some measure advance the inquiry."2 Weinstein's Federal Evidence § 401.04[2][b], pg 401-19 (2d ed. Matthew Bender).

In short, by raising an Ellerth defense the employer may place at issue everything it does or does not do to prevent and remedy discrimination and everything it does or does not communicate to its employees about how that process operates. At least for discovery purposes such information on its face relates to the subject matter of the defense -- ie: the effectiveness of the policy and the reasonableness of the employee's actions.

Beyond expanding relevancy, this defense is likely to pose a serious obstacle to claiming that production of information regarding other harassment claims is unduly burdensome.

Part of the requirement for an effective anti-harassment, anti-discrimination policy includes a record keeping system that allows management to readily track complaints of discrimination and to immediately determine when a supervisor has been the subject of repeated complaints. In Faragher the company policy was insufficient as a matter of law in part because higher "officials made no attempt to keep track of the conduct of supervisors."27 Thus, an argument that it is unreasonably burdensome to produce records related to complaints, investigations, and discipline may come close to an admission that the policy does not contain a sufficient monitoring system to sustain the affirmative defense.

CONCLUSION

Ellerth and Faragher are likely to materially expand the scope of discovery in employment cases both in terms of geographic scope, review of complaints of "unrelated" discrimination and may result in waiving attorney-client and work product privileges when attorneys are used to conduct harassment or discrimination investigations.

1. 449 U.S. at 394.
2. United States v. Intern'l Brotherhood of Teamsters, 961 F.Supp. 665, 672 (S.D.N.Y.1997).
3. Comment to Rule 1.7, Oklahoma Rules of Professional Conduct.
4. Rule 1.7(a)(1), Rules of Professional Conduct.
5. Comment to Rule 1.7, Rules of Professional Conduct.
6. See Wilson v. Tulsa Junior College, 164 F.3d 534, 543 n. 7 (10th Cir.1998) ("An employer's failure to fully investigate a complaint supports a finding that its response was inadequate. See Ellison v. Brady, 924 F.2d 872, 881 (9th Cir.1991). Moreover, an employer's decision to do nothing on the basis of an inadequate investigation likewise supports a finding that the employer did not take prompt and effective remedial action. See Hathaway v. Runyon, 132 F.3d 1214, 1224 (8th Cir.1997).").
7. Upjohn, 449 U.S. at 395-96.
8. See Henson By And Through Mawyer v. Wyeth Laboratories, 118 F.R.D. 584, 587 (W.D.Va. 1987).
The test is set out in McCaugherty v. Sifterman, 132 F.R.D. 234, 238 (N.D.Cal.1990):
[W]here there is a clear business purpose in the environment in which the communications occurred[], the court should   sustain an assertion of privilege only when there is a clear evidentiary predicate for concluding that each                          communication in question was made primarily for the purpose of generating legal advice. No privilege can attach to any communication as to which a business purpose would have served as a sufficient cause, i.e., any communication that would have been made because of a business purpose, even if there had been no perceived additional interest in securing legal advice...
9. Upjohn, 449 U.S. at 38-39 citing to ABA Code of Professional Responsibility, Ethical Consideration 4.1.
10. See Frontier Refining Inc. v. Gorman-Rupp Co., Inc., 136 F.3d 695, 704 (10th Cir.1998) ("a litigant cannot use the work product doctrine as both a sword and shield by selectively using the privileged documents to prove a point but then invoking the privilege to prevent an opponent from challenging the assertion.").
11. EEOC Enforcement Guidance: Vicarious Employer Liability for Unlawful Harassment by Supervisors, No. 915.002 (6/18/99), pg 15.
12. Harding v. Dana Transport, Inc., 914 F.Supp. 1084 (D.N.J.1996) and Worthington v. Endee, 177 F.R.D. 113 (N.D.N.Y.1998) are thorough examinations of why EEO investigations conducted by corporate counsel are discoverable and why objections to such discovery are likely to be futile.
13. See Rule 1.7 and 3.7, Oklahoma Rules of Professional Conduct and Advisory Opinions 115, 149, 161, 265, 280.
14. See Tran v. Standard Motor Products, Inc., 10 F.Supp.2d. 1199 (D.Kan.1998) (evidence of bias on part of supervisor and efforts to obtain statements against complainant defeated summary judgment) and Valdez v. Church's Fried Chicken, Inc., 683 F.Supp. 596 (W.D.Tex.1988) (manager who conducted the investigation implicated in the harassment). Cf. Woods v. Graphic Communications, 925 F.2d 1195 (9th Cir.1991) (union breach duty of fair representation when it intentionally failed to process a harassment grievance without investigation because it did not want to implicate other bargaining unit members).
15. The scope inquiry as to bias can be extremely broad. See Foster v. United States, 282 F.2d 222, 224 (10th Cir.1960):
. . . Mr. Wigmore describes bias as covering 'all varieties of hostility or prejudice against the opponent personally or of favor to the proponent personally.' He describes interest as signifying 'the specific inclination which is apt to be produced by the relation between the witness and the cause at issue in the litigation.'. . .
Proof of bias is never collateral and is not subject to the limitations imposed on character evidence. See United States v. Keys, 899 F.2d 983, 986 n. 2 (10th Cir.1990) ("Bias is never classified as a collateral matter which lies beyond the scope of inquiry."). Accord United States v. Dunson, 142 F.3d 1213, 1216 (10th Cir.1998) (quoting Keys).
16. 15 U.S.C. §§ 1681 et seq.
17. 15 U.S.C. § 1681a(d), (k).
18. 15 U.S.C. § 1681a(f).
19. 15 U.S.C. §§ 1681d, 1681g, 1681k, inter alia.
20. 15 U.S.C. §§ 1681n, 1681o.
21. "[W]e reject petitioner's view that the mere existence or a grievance procedure and a policy against discrimination, coupled with respondent's failure to invoke that procedure must insulate petitioner from liability."
22. EEOC v. Wal-Mart Stores, Inc., 187 F.3d 1241, 1248 (10th Cir.1999) (discussing corporate liability for punitive damages).
23. Id., 477 U.S. at 72-73.
24. Id., 118 S.Ct. at 2293.
25. EEOC v. Wal-Mart, supra, 187 F.3d at 1248-49.
26. Faragher, 118 S.Ct. at 2292 (quoting Ford Motor Co. v. EEOC, 458 U.S. 219, 231 n. 15 (1982),
27. Id., 118 S.Ct. at 2293.

MARK HAMMONS of Hammons & Assoc., Inc., did his undergraduate work at OU and attended law school at OCU, graduating in December 1975 with a Juris Doctorate. Mr. Hammons was elected to the Oklahoma House of Representatives in 1972 and served three terms as the representative from Canadian County. He began private practice in his own law firm in 1976 and has been the principal in his law firm since then with a practice primarily in federal court in the areas of civil rights, employment discrimination and administrative law. Mr. Hammons is a past chairman of the OTLA Employment Litigation section, founder and President of the Oklahoma Employee Lawyer's Association and is also a member of the ATLA and the National Employment Lawyers Association. He has been involved in presenting numerous legal seminars sponsored by the OBA, OTLA and the National Business Institute. This is his fourth article published in the Oklahoma Bar Journal.