In a recent decision, the Federal Circuit Court of Australia stripped an employer of the mask of legal professional privilege over a report it considered in making a termination decision.

What happened?

An employee was dismissed for various reasons including inappropriate appointment and management of cleaning projects and maintaining undisclosed personal relationships with staff members in breach of his employer’s policies.

The employee alleged that his employer had taken adverse action against him, culminating in the termination of his employment.

The pleadings in the matter revealed that an interim report from a legal firm was presented to the Board, which recommended that the CEO terminate the employee’s employment.

The employee sought the production of the report.  The employer claimed client legal privilege over the report and resisted production.

Critical findings

The Court found that the CEO terminated the employee’s employment only after the Board recommended his termination, which in turn only occurred after consideration by the Board of the report from its lawyers.

As the employer relied on the Board’s advice in defending its decision in the proceedings, the Court held that it would be unfair to the employee to allow the employer to rely on its pleadings without disclosing to the employee the factual basis on which it relied in reaching its decision.

Consequently, the Court ordered that the report be disclosed to the employee.

In making its decision, the Court held that it is not sufficient to waive privilege if the employer simply refers to legal advice or to a decision having been made after consultation with lawyers.  Legal professional privilege was lost in this case when it was shown that there is a likelihood that the legal advice contributed to that state of mind of the decision maker.

Lessons for employers

This case makes it clear that the mask of privilege can be lifted when an employer least expects or wants it.

Privilege is a very technical area and a failure to ensure it is preserved at all times during investigations and litigation could result in damaging and sensitive information being provided to your opponent.

This is especially so in adverse action cases where the state of mind of the decision maker is the key factor. 

Involving the Board in the decision, and providing intermingled investigation findings and legal advice to the Board for that purpose has clearly led to the waiver of privilege in the current case.  Had a proper structure for the investigation, decision making and Board involvement been implemented in this matter, it is possible the Court would not have ordered that the privileged advice be disclosed.

Tips to avoid disclosure of privilege

Some other practical tips on how to seek to maintain a claim for privilege are set out below:

  • Board and management meetings - organisations should be careful not to disclose advice given by lawyers in minutes of Board or management meetings.  Minutes may record that advice has been given but should not annexe that advice or summarise or repeat the substance of it in the minutes.  Minutes are generally regarded as created for the dominant purpose of recording the business of a meeting and any advice recorded may lose its privileged status in that form.
  • Internal communications ideally, all communications with lawyers should be kept separate from usual business communications and documentation and should be clearly marked ‘Confidential and Privileged’.
  • Restrict Access - organisations should keep the people involved in advice/litigation to a minimum.  Communications must be treated as highly confidential to prevent a waiver.