Australia: Employee investigation reports not always privileged

A recent decision of the Federal Circuit Court serves as an important reminder for employers to ensure that lawyers are properly engaged and that employers receive advice relating to the maintenance of privilege over documents.

In the case of Bartolo v Doutta Galla Aged Services Ltd  [2014] FCCA 15171 ("Doutta Galla"), the Federal Circuit Court ordered an employer to provide a dismissed employee with a confidential investigation report prepared by a law firm which detailed the findings of an investigation into the employee’s alleged conduct.

The Federal Circuit Court found that legal professional privilege attaching to the investigation report had been waived when the employer set out the reasons for the employee’s dismissal in its defence to adverse action proceedings instituted by the employee. These reasons included the Board of the company recommending that the employee be dismissed based on the findings of the investigation.

This decision reinforces the principles underpinning the doctrine of legal professional privilege and the circumstances in which the privilege may be waived. It also emphasises the importance of employers exercising caution when dealing with privileged documents and responding to any legal proceedings, particularly in the context of adverse action claims where a reverse onus will apply.

What is legal professional privilege and how can it be lost?

As a general proposition, confidential communications between a client and its legal adviser which are created for the dominant purpose of providing legal advice or for use in litigation, are protected by the doctrine of legal professional privilege. Where legal professional privilege is established, it enables the client to resist the production of a document which contains privileged communications. 

However, legal professional privilege can be lost where the conduct of the client is inconsistent with the maintenance of the privilege. For example, where the client intentionally discloses the content of the legal advice to a third party.

Waiver in a general protections context

The Federal Circuit Court case of Doutta Galla is a recent example of an employer acting inconsistently with the maintenance of legal professional privilege and as a result, waiving its right to claim the privilege.

In Doutta Galla, the employer had engaged a law firm to conduct an investigation into allegations concerning an employee. Following receipt of an investigation report and legal advice, the Board recommended to the CEO of the company that the employee be dismissed. The CEO subsequently dismissed the employee.

The employee then commenced proceedings alleging that the company had taken adverse action against him by engaging the law firm to investigate his conduct and subsequently terminating his employment.

When it filed its formal defence to the employee’s adverse action claim in the Court, the company said (amongst other things) that:

• it had retained a law firm to investigate the employee’s conduct;
• the law firm had provided the Board with a confidential investigation report;
• the Board had considered the report and advice in recommending that the employee be dismissed; and
• the CEO had taken into account the Board’s recommendation in dismissing the employee.

The employee subsequently sought access to the investigation report claiming that he was entitled to see any documents which were relevant to the CEO’s state of mind when making the decision to terminate his employment.

Importantly, Whelan J was satisfied that the dominant purpose of the confidential communications between the Board and the law firm was to obtain legal advice, and therefore the investigation report was privileged. This was based on uncontested evidence that the Board was concerned about its exposure to legal liability arising from the employee’s conduct (which was the reason for the investigation), and that the Board had retained the law firm to investigate the employee’s alleged conduct and advise on workplace laws and the Board’s governance and compliance responsibilities.

However, given that the reasons behind the Board’s recommendation to terminate the employee were set out in its defence, Whelan J found that the basis for the recommendations (which likely came from the investigation report) were open to scrutiny. On that basis, Whelan J held that it would be unfair to the employee to allow the company to rely on its defence without disclosing the factual basis upon which the Board formed its reasons for the recommendation to dismiss the employee. Accordingly, Wheelan J ordered that the company produce the investigation report to the employee.

Implications for employers

The  decision  in  Doutta  Gala  emphasises  the  importance  of  exercising  caution  with  respect  to  legally privileged documents and serves as an important reminder that:

•  the manner in which lawyers are engaged is critical. A claim for legal professional privilege can only succeed where the confidential communications between a lawyer and client are for the dominant purpose of providing legal advice or for use in litigation;
• employers should carefully limit the dissemination of privileged investigation reports to ensure that they retain control over the disclosure and use of such reports;
• privilege may be waived over legal advice if the substance of legal advice has been disclosed. The substance of legal advice can be disclosed by an employer expressly relying on the advice as justifying or explaining its decision to dismiss an employee when responding to legal proceedings; and
•  where a  workplace investigation  is conducted  under privilege, employers should be mindful of the possibility that privilege may be waived at a later stage – either voluntarily by the employer or by compulsion of a court order if the employer acts inconsistently with the maintenance of that privilege (even if this is done inadvertently). Therefore, employers, in conjunction with their legal advisers, should consider at the outset how any report should be structured, what it will contain and to whom it will be communicated.

To ensure that each of the considerations above are adequately resolved, it is important to engage law firms early and ensure that advice is received in relation to the creation of legally privileged documents. This will provide employers with the best opportunity to preserve a claim to privilege over documents.