Companies May Not Shield Internal Employment Law Assessments From Disclosure  

With "Self-Critical Analysis Privilege"

The current climate in the world of employment law presents many challenges for employers. Regulations and applicable labor laws are complex and plentiful.  Audits by state and federal Departments of Labor, as well as litigation brought by employees, are on the rise.  In these difficult times employers must pay special attention to whether their businesses are in compliance with all of the mandates and responsibilities placed on them by these laws.   

Employers Cautioned to Utilize Legal Counsel in Conducting Internal Evaluations

A recent decision of a District Court within the Third Circuit, Craig v. Rite Aid Corp., Civil Action No. 4:08-cv-02317-JEJ-MCC (E.D.P.A. Dec. 29, 2010), has placed another hoop in the employer's path by somewhat diminishing its ability to protect the confidentiality of documents generated as a result of a voluntary internal compliance assessment.  The Court confirmed that, within the Third Circuit, documents generated as part of a company's voluntary internal evaluation for the purposes of determining compliance with applicable labor laws and relevant bargaining agreements are not protected from disclosure by the "self-critical analysis privilege."  This ruling highlights the importance for an employer to proceed with caution when conducting these necessary evaluations in order to adequately protect its interests.  Prudence would dictate that such types of formal assessments should be overseen by legal counsel who can properly guide the employer in protecting its interests in the long run.

In Craig v. Rite Aid Corp., the plaintiffs instituted a class-action on behalf of all current and former Rite Aid assistant managers from December 2005 to the present, claiming that they were the subject of improper misclassification wrongfully exempting them from overtime under the Fair Labor Standards Act (FLSA).  In 2008 to 2009, Rite Aid had conducted a voluntary internal evaluation, or "self-critical analysis," as part of a store restructuring to evaluate its compliance with the FLSA, other applicable labor laws and bargaining agreements.  Rite Aid sought to exercise the privilege of "self-critical analysis," which would render the documents privileged and protected from disclosure because they were generated as part of an internal assessment conducted for the purposes of "self-improvement."  The Court determined that, up to this point, the Third Circuit has not recognized the "self-critical analysis privilege." The Court pointed to the fact that Congress has not created such a privilege and referenced its lack of support in the common law. Additionally, the Court noted that, when the privilege has been found to be applicable, it has been applied very narrowly to cases where the preparation of documents was mandatory and specifically directed by the government or applicable law. 

Accordingly, the Court ultimately declined to recognize the "self-critical analysis privilege" and clarified its ongoing inapplicability in the Third Circuit.  The Court noted, however, that its decision in doing so does not affect the applicability of other legal privileges which may, in fact, protect the documents, noting defendant's position that the documents are also protected by the attorney-client privilege and the attorney work-product doctrine.  The Court did not make a determination regarding the applicability of those privileges as they are not currently before the Court.

Conducting Voluntary Compliance Evaluations is Necessary  

for Running a Successful Business

In these challenging times, employers must safeguard their interests as well as the interests of their employees by constantly reforming the infrastructure of the business itself to ascertain compliance with all of the many mandates and responsibilities placed on them by the law.  Conducting internal compliance assessments is necessary and important for a successful business.  In doing so, however, the employer must continue to safeguard its interests during the process.  The assistance of legal counsel can help to guide the employer and ensure that such assessments are conducted in a manner which not only strengthens the company from within but protects the employer's interests in the process.

If you have any questions with regard to conducting a company internal evaluation or how this new development may impact your business, feel free to contact the Nukk-Freeman & Cerra attorney with whom you normally work. 

Any tax advice included in this written or electronic communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.