How to Conduct a Privileged Proactive Pay Analysis ... · • Does attorney work product privilege...

How to Conduct a Privileged Proactive Pay Analysis: Protecting Your Organization’s Pay Practices Thursday, August 4, 2016

Shafeeqa Giarratani, Partner Norton Rose Fulbright - Austin Shafeeqa Giarratani leads the firm’s Affirmative Action practice and specializes in handling pay discrimination cases.

She represents employers regarding pay cases in federal and state court and before administrative agencies such as the Equal Employment Opportunity Commission, the Texas Workforce Commission, and the Office of Federal Contract Compliance Programs. She routinely assists federal contractor clients with government investigations, and regularly advises clients on proactive diversity practices, including properly performing pay analysis. Shafeeqa has been recognized as a distinguished employment lawyer by Law 360, USA Chambers and Texas Lawyer.

Agenda

•  Why run a privileged pay analysis? •  What is privilege?

•  How is it established?

•  How is it maintained?

•  What can I report out?

•  Best practices

Why run a pay analysis at all?

Why run a proactive pay analysis?

•  As federal contractors, there is a legal requirement to analyze pay

–  “The contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex, sexual orientation, gender identity, or national origin. The contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex, sexual orientation, gender identity, or national origin. Such action shall include, but not be limited to the following: Employment, upgrading, demotion, or transfer, recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship.”

–  41 C.F.R. § 60-1.4(a)(1).


•  Not just for federal contractors… –  Title VII of the Civil Rights Act

–  Equal Pay Act –  Ledbetter Fair Pay Act

–  California Fair Pay Act (NY…and other state laws) –  EEO-1 Report

–  Pay Transparency


•  Ignorance is not bliss! Know what your data says •  Identify potential issues so that the company is able

to explain or correct before disclosure, litigation, or government investigation

•  Market reputation •  Get out ahead of any problems sooner rather than

later

Why run a PRIVILEGED pay analysis?

Privilege: Why Is It Important?

•  When a company can claim a privilege on information, it can keep the information private and not subject to disclosure in litigation or a government investigation

•  Privilege is very important to maintain for pay analysis because pay analysis often have sensitive information and potentially self-critical information regarding the company

•  Don’t create “Exhibit A” for your opponent!


• Results may not be positive

• OFCCP and EEOC can use non-privileged information in audits or investigations to recover monetary damages and penalties


• Your company’s pay can become a headline!


•  Can be used against companies in litigation •  Ryan v. Gifford, 2007 Del. Ch. LEXIS 168 (Nov. 30, 2007)

•  By submitting to the full Board the special committee’s internal investigation findings, the special committee waived the attorney/client privilege which otherwise would have shielded the report from discovery by plaintiffs.

•  The Shaw Group v. AES Wolf Hollow (Tex. 2005) •  Texas trial court ordered Ernst & Young to turn over audited financial

statements

•  Texas Supreme Court upheld, in the face of auditor-client privilege, and required that the underlying materials reviewed for the audit be included

What is privilege?

What is Attorney- Client privilege?

• Basis of attorney privilege – Relationship of trust and confidence

– Like a priest–parishioner relationship

– “Purpose is to enable better legal advice”

What is Attorney- Client Privilege?

• 3 Key Types – Attorney Work Product Privilege

– Attorney-Client Privilege

– Self-Critical Analysis

Attorney Work Product Privilege

• Attorney Work Product Privilege – All US courts recognize the attorney work product privilege – The privilege protects and keeps an attorney’s work product

private; extends to a lawyer’s notes, observations, thoughts and research are protected from discovery processes

– Generally, the work product privilege applies where attorneys create analyses “in anticipation of litigation” or where the primary motivating purpose behind the creation of the document was to aid in possible future litigation

Attorney Work-Product Privilege

•  What is “in anticipation of litigation”? –  “Because of Litigation” Test (Majority)

•  If in light of the nature of the document and the factual situation in a particular case, the document can be said to have been prepared or obtained at least in significant part because of the prospect of litigation.

–  “Primarily to Assist in Litigation” Test (Minority) •  The primary motivating purpose behind the creation of the document

must be to aid in possible future litigation.

Attorney Work-Product Privilege

• Can “in anticipation of litigation” apply to self-critical pay analysis?

– Yes – IF truly prepared in anticipation of litigation. Weekoty v. United States, 30 F. Supp. 2d 1343 (D.N.M. 1998)

Attorney Work Product Privilege

• Does attorney work product privilege apply to individuals that work with the attorney?

– United States v. Kovel, 296 F.2d 918 (2d Cir. 1961) – “Attorney-client privilege may extend to include

communications made by or to an attorney’s employees, including secretaries, legal assistants, and paralegals.”

– Kovel expands the privilege to include communication with consultants (accountants, medical professionals, etc.)

Attorney-Client Communications

• Attorney-Client Communications Privilege – Only protects the essence of the communications actually had by

the client and lawyer and only extends to information given for the purpose of obtaining legal representation (and kept confidential)

– Found in the common law and/or statutes of every state – Purpose

•  Sometimes referred to as the “testimonial privilege” •  The attorney-client privilege applies in judicial and other proceedings in

which a lawyer may be called as a witness or otherwise required to produce evidence concerning a client

Attorney Client Communications Privilege

• Attorney-Client Communications Privilege – Every communication with attorney is not protected – Cannot forward otherwise unprivileged documents and they

become privileged – Communication must be actually had by the client and

lawyer and only extends to information given for the purpose of obtaining legal representation (and kept confidential)

•  In re Subpoenas Duces Tecum, 738 F.2d 1367 (D.C. Cir. 1984)

Self –Evaluation Privilege

• Self-Evaluation/Self-Critical Analysis Privilege

•  Some US courts recognize the self-

evaluation or self-critical analysis privilege

•  Court created and only in limited courts •  Not based on attorney involvement •  No statutory basis

Self-Evaluation Privilege

• Self-Evaluation/Self-Critical Analysis Privilege – Much more difficult to establish

– Often not recognized

– Requires high degree of confidentiality

How Do You Establish Privilege?


• Establish privileged purpose upfront

– Use outside counsel

– Prepare engagement letter – Ground all analyses in legal advice in preparation for litigation


• In-House vs. Outside Counsel – Discovery disputes commonly arise concerning

whether a communication with an in-house counsel is privileged, especially when the in-house counsel provides both business and legal advice

– Lines blurred when in-house counsel provides advice and makes personnel decisions

Inside v. Outside Counsel

•  Prepared in anticipation of litigation + use of outside counsel = PRIVILEGE In re Vecco Instruments, Inc. Securities Litigation –  2007 WL 210110 (S.D.N.Y. Jan. 25, 2007) –  Plaintiff moved to compel various financial documents related to investigation of accounting practices –  Held: Internal audit and related materials were privileged by the work product doctrine, because audit

was coordinated by outside counsel and prepared in anticipation of litigation

•  Prepared in anticipation of litigation + no outside counsel = NO PRIVILEGE Georgia-Pacific Corp. v. GAF Roofing Manufacturing Corp. –  1996 WL 29392 *5 (S.D.N.Y. 1996) –  Court considered whether in-house attorney was “exercising a lawyer’s traditional function in

counseling his client” for purposes of privilege analysis –  Held: that in-house counsel’s participation in negotiations as a business advisor destroyed the

attorney-client privilege


U.S. Postal Service v. Phelps Dodge Refining Corp. –  852 F. Supp. 156, 163 (E.D.N.Y. 1994) –  Addressed the situation of corporate communications that included in-house counsel –  Held: “a corporation cannot be permitted to insulate its files from discovery simply by sending a

‘cc’ to in-house counsel.”

Gucci America, Inc. v. Guess?, Inc. –  2010 U.S. Dist. LEXIS 65871 (S.D.N.Y. June 29, 2010) –  Privilege did not extend to in-house counsel communications where in-house counsel failed to

maintain active bar membership in state where communications were originated or sent


• Azko Nobel Chems. Ltd. and Akcros Chems. Ltd. v. Comm’n of the European Communities

– C-550/07 P (September 14, 2010) – Considered discoverability of in-house counsel communications during

investigation brought by European Commission – Held: privilege is restricted to outside counsel –  “An in-house lawyer, despite his enrollment with a Bar or Law Society and the

professional ethical obligations to which he is, as a result, subject, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client.”

Engagement Letter

•  Sample engagement letter provision –  As you are no doubt aware, there is an increasing trend towards the use of statistical analyses in

litigation surrounding employment decisions (including hiring, termination and compensation). Specifically, employers have seen a disproportionate rise in class action litigation (and the unflattering media coverage that results) arising out of adverse impacts on the compensation and terms of employment for its employees. Given the above, Company engages Norton Rose Fulbright US LLP to provide legal assistance. All analysis pursuant to the Representation shall be performed in the expectation of potential litigation and, as such, shall be privileged; accordingly, receipt of the analysis shall be limited without exception to a control group of select Company representatives.

Report Out Grounded in Legal Advice

•  Analysis provided along with legal advice regarding same

•  Analysis labeled attorney client privileged •  Analysis distribution limited to control group

– STRICT instructions not to forward or distribute

How Do You Maintain Privilege?


• Once established, it is essential to maintain the privilege – Waiving the privilege on the pay analysis waives the privilege

associated with the analysis results, as well as documents and communications related to the same

– Any and all communications relating to the privilege would then be discoverable in a governmental investigation and/or litigation

– Waiving the privilege may also substantially increase the risk of pay discrimination litigation


• Create a Control Group – Decide at the beginning who is to have a role in the analysis and

what that role will be – Not a “more the merrier” situation

• Commit resources – Make maintaining the privilege a clear company priority – Privilege will not survive if you don’t make efforts – Create the necessary infrastructure to maintain confidentiality


• Reiterate privilege throughout the process – Stamp physical documents “privileged and confidential” – Preface email subject lines in the same way –  Include boilerplate language (e.g., “pursuant to request for legal advice”) in

written communications – Frame correspondence as requests for outside counsel’s opinion and

guidance – Ensure control group remains small, dissemination is prevented – Limited related correspondence by those outside the control group – Company will gather facts; outside counsel will apply law to the facts


• Train, train, train! – Train control group members on scope of review

and protection of data and results – Train management on responding to discovered

problems – Train employees on corresponding with company

and with outside counsel – Train executives on the limitations of the need-to-

know nature of the pay analysis and results

What can you report out and maintain privilege?

Executive Report Out

• Limited report-out – Classic “executive summary”

– “30,000 foot view”

– Minimal data, detail

Employee Report Out?

• None

• If needed, to managers at high level view and only with regard to those under their supervision

Media Report Out

• Discussing the pay analysis with media •  Any discussion regarding the pay analysis should only be that one was

conducted

•  Detailed information regarding the analyses will jeopardize the privilege and only increases the legal risks for the company

Media Report Out

• What to Say: •  The company is committed to addressing equal pay •  The company regularly reviews its salaries to ensure fairness •  The company worked with legal counsel to complete a comprehensive pay review

• What Not to Say: •  Do not discuss the results of the analysis, how it was conducted, or what was done with

it •  Do not discuss the purpose of the analysis (beyond what is noted above) •  Do not discuss who has seen or reviewed the analysis •  Do not discuss problems found or changes made based upon the analysis

What do you say when the OFCCP asks for your privileged pay analysis?

OFCCP Request for Privileged Pay Analysis

– Assert your privilege •  In anticipation of litigation • By outside counsel • Be prepared to show documentation,

including engagement letter • Problems of waiver

– Timing of analysis: analysis at time of AAP creation or some other time?

– Privilege log?

Can a legally required analysis be privileged?

– Yes! •  OFCCP itself provided that pay analysis could be privileged

•  2006 Voluntary Guidelines for Self-Evaluation with Compensation Practices for Compliance with Non Discrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination

–  "Compliance Certification Alternative“ allowed contractors to certify a pay analysis had been conducted but would not be provided due to privilege

– BUT, consider two analysis: one privileged and one not

Best Practices

Best Practices

Preparing and presenting results with executive team and maintain privilege •  Involve outside counsel at each

stage •  Draft materials with the expectation

that they will be made public •  “Hope for the best but prepare for

the worst”

Best Practices

Communicating the process with employees

– Avoid a paper trail: communicate orally wherever possible

– For written communications, provide the minimal amount of information necessary to get your point across

– Where appropriate, test a privileged “mini audit” to assess problem areas

Best Practices

If OFCCP asks to review your analysis or conclusions?

• Assert your privilege!

Final Thoughts… 4 Steps to Prepare for Compensation

1. Proactive Privileged

Pay Analysis

2. Manage Pay Practices

3. Investigate Complaints

4. Strong Documentation

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