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The In-House Advisor Published by Shepard Davidson & Renee Inomata

The Attorney-Client Privilege and Individuals Who Are the “Functional Equivalent” of Employees

Posted in Attorney-Client Privilege

Communications between attorneys and clients that are not private, and/or communications between attorneys and third parties, cannot be protected from disclosure by the attorney-client privilege.  When the client is an individual, it generally is easy to discern if a communication is private, and it usually is obvious if an attorney is communicating with a third party.  When the client is a corporation or some other entity, however, it can be much less clear as to whether a particular person will be deemed to be the client or a third party.  One scenario where this issue routinely arises is when company counsel communicates with an individual who is an independent contractor or some other person working closely with the company, but who is not an employee.

One of the leading cases to address the issue as to whether a communication between company counsel and a non-employee can be privileged is In re Bieter Company.  In that case, the 8th Circuit held that the attorney-client privilege could apply to communications between a client’s attorneys and a client’s independent contractors if “it [would be] inappropriate to distinguish between those on the client’s payroll and those who are instead, and for whatever reason, employed as independent contractors.”  Put another way, the Court said that if an individual is the “functional equivalent” of an employee, the fact that he or she technically is not an employee will not be a basis for abrogating the attorney-client privilege.

While at least one Massachusetts court has followed the functional equivalent test, in-house counsel should be wary of the narrowness of that ruling.  In One Ledgement LLC. v. Town of Lexington, et al., one of the defendants objected to producing emails between company counsel and Charles Batchelder based on the attorney-client privilege.  The plaintiff challenged that objection because Mr. Batchelder was not an officer, director or employee of any of the defendants.  The defendant responded by arguing that notwithstanding the foregoing, because Mr. Batchelder was the functional equivalent of an employee, the documents still should be protected by the attorney-client privilege.  Ultimately, the Superior Court sustained the objection, noting that:

While this functional equivalent analysis is not yet chiseled deeply into the decisions of Massachusetts’ appellate courts, there is good reason to conclude that our Supreme Judicial Court, if and when presented with the occasion, would apply and follow this line of Federal Court jurisprudence.

Notwithstanding the ruling, in-house counsel, in particular, should take note of the facts of One Ledgement before jumping to the conclusion that anyone working closely with a company will be deemed the functional equivalent of an employee.  Indeed, the trial judge specifically noted the following facts in finding that communications between company counsel and Batchelder were privileged:

  • Batchelder had an exclusive relationship with the company;
  • Batchelder’s relationships with the company was of long duration, and the company was highly deferential to him;
  • Batchelder was a key decision leader for the most senior management of the company;
  • Batchelder garnered a large amount of his compensation from the company and gave the company veto power over work he otherwise could have undertaken for other entities; and
  • Batchelder had an insider role in advising the company about its real estate holdings, including how the company acquired, ran, leased, improved, developed and disposed of its real estate assets.

So, at least in Massachusetts, while one who is the functional equivalent of an employee may have privileged communications with company counsel, showing that an individual is the functional equivalent of an employee may not be that easy.