With companies facing tougher regulatory oversight, and a marked rise in shareholder activism, it has become critical for them to detect and investigate evidence or allegations of corporate misconduct at an early juncture. Effective and thorough internal investigations are an important tool in a company's arsenal to ensure that potential wrongdoing is caught and appropriate measures taken to limit its exposure to criminal, quasi-criminal and civil actions.
Internal investigations are fraught with a host of legal challenges for companies, which often prove difficult to navigate. This is particularly true when interviewing employees as part of the investigation and issues of privilege that may arise.
The importance of ensuring that privilege is maintained in this context is readily apparent. Protecting these communications ensures that the company is positioned to gain a proper understanding of the incident in question and take necessary remedial action while minimizing the risk that the corporation's investigative efforts are used against it.
As a starting point, Canadian courts have generally found that internal investigations directed by in-house legal counsel are privileged, provided that the purpose of the investigation is to: (1) gather facts to provide legal advice to the corporation (and therefore "solicitor-client privilege" applies); and/or (2) seek information for pending or anticipated litigation (and therefore subject to "litigation privilege").
The rank or role held by the employee being interviewed has no bearing on the type of privilege that applies. However, the privilege attaching to internal investigations is not absolute and can be waived, either intentionally or inadvertently, by the disclosure of the investigative findings to third parties. Here are some guidelines to follow to ensure that privilege is properly asserted and maintained over employee interviews:
- Ideally, counsel should conduct the interviews, whether internal or external;
- If external counsel is retained instead, a signed legal retainer agreement should clarify that the purpose of the interviews is to provide legal advice to the corporation;
- Instruct the employee being interviewed that the interview is confidential in nature and is not to be discussed with anyone outside of the interview;
- Counsel should be the one generating any reports from the interview and should mark all documentation "privileged and confidential";
- If any third parties are to be retained to provide assistance or information in conducting the interview, they should all sign written retainers indicating that the purpose of seeking their assistance is to provide legal advice to the corporation;
- If information from the interviews is to be shared by similarly affected, but distinct, parties, they should sign common interest privilege agreements; and
- As described further below, the interviewee must be advised that counsel conducting the internal investigation is counsel for the company, not the interviewee.
Another matter discussed in the United States, but which has received less attention by the Canadian courts (although followed by many counsel conducting internal investigations in Canada), is the issue of who can rely on the privilege tied to an investigative interview. To experienced in-house counsel, the answer may seem self-evident that only the corporation can make a claim to privilege. However, there have been cases where individual employees (particularly where they are also officers or directors) have confused the corporation's lawyer for their own and argued that solicitor-client privilege attached to statements made to counsel which the company cannot waive.
As a result, it is common practice in the U.S. and Canada for counsel to commence investigatory interviews with what are termed "Upjohn warnings" or, less commonly, "corporate Miranda warnings" to ensure that there is no confusion about the purpose of the interview and the nature of the privilege that attaches to it. In a typical Upjohn warning, counsel will inform the witness that:
- Counsel represents the interests of the company alone and is not counsel for the individual employee;
- The interview is privileged;
- The privilege that exists belongs to and is controlled by the company; and
- The company has the right, in its sole discretion, to waive the privilege attaching to the interview.
While there is some downside to issuing such a warning at the outset of an interview, as the employee might have less incentive to provide full and frank disclosure to counsel of matters he or she knows about, it is still a best practice that such warnings be mandatory at the outset of all interviews. The warning serves at least two important purposes: (1) it discharges an ethical obligation on the part of the interviewing lawyer to ensure that the witness is not under the mistaken belief that the corporation's counsel represents the witness' interests; and (2) it provides notice that, while the corporation is currently treating the interview as confidential, it is expressly reserving its right to waive privilege over the contents of the interview and turn the information over to regulators or law enforcement officials where it considers it appropriate to do so. This minimizes the employee's ability to argue any unfairness has occurred in the process or that the statement should be excluded from any subsequent regulatory, criminal or civil proceeding relating to the misconduct.
Ultimately, care must be taken to ensure that any interviews of employees undertaken as part of the investigation will be subject to a claim a privilege and that the privilege is not waived except where the corporation expressly intends to do so in furtherance of its best interests.