Corporate Counsel Connect collection

September 2014 edition

Attorney-client privilege in internal investigations; FLSA learned professional exemption; premium tax credits for health insurance exchanges

Attorney-client privilege in internal investigations

Companies conducting internal investigations should take steps to maximize the attorney-client privilege protection in light of a recent DC Circuit decision.

In In Re: Kellogg Brown & Root, Inc., the DC Circuit reversed the district court's outlier decision and confirmed that the attorney-client privilege applies to internal investigations where seeking legal advice is one significant purpose of the investigation. Seeking legal advice need not be the sole purpose of the investigation. As a result, companies can once again claim attorney-client privilege protection where, in addition to seeking legal advice, an internal investigation:

Is conducted by in-house counsel.
Includes witness interviews by non-attorneys.
Has a business or regulatory purpose.

This ruling provides protection for companies conducting internal investigations into employee misconduct, including harassment, workplace violence, and health and safety violations. These investigations often are conducted pursuant to a regulation or corporate policy, in addition to seeking legal advice, and involve non-attorneys, such as human resources personnel.

To maximize attorney-client privilege protection during an internal investigation, companies should:

Specify in all written communications that a significant and primary purpose of the investigation is to provide or seek legal advice.
Use in-house or outside counsel to oversee and direct the investigation. However, companies should consider using outside counsel to enhance the claim of privilege if the general counsel wears multiple hats (for example, the general counsel is also the chief compliance officer).
Train other employees with authority to initiate investigations (such as the head of human resources or the chief financial officer) to document that seeking legal advice is a significant purpose of any investigation.
Communicate the investigation's purpose to everyone involved, including witnesses.
Create company policies identifying those who can waive the privilege (such as the general counsel).

For more on internal corporate investigations, see Practice Notes, Handling Employment-related Internal Investigations and Internal Investigations: US Privilege and Work Product Protection.

FLSA learned professional exemption

A recent Second Circuit decision clarifies for employers the application of the Fair Labor Standards Act's (FLSA's) learned professional exemption to entry-level professionals.

To be learned professionals, exempt from federal minimum wage and overtime compensation, employees must:

Be employed in a field of science or learning.
Use knowledge customarily acquired by prolonged specialized instruction.
Exercise professional judgment consistently.

In Pippins v. KPMG LLP, the court held that entry-level accountants are exempt. In doing so, the court concluded that:

Learned professionals must rely on their advanced knowledge and regularly make judgments characteristic of their profession. By contrast, exempt administrative employees must exercise management authority or guide business operations.
Even entry-level professionals can rely on their advanced knowledge.
Guidelines do not defeat the exemption if professionals use advanced knowledge to deviate from them, including identifying when to involve senior colleagues.
The education requirement can be satisfied by a few years of relevant specialized training, such as a bachelor's degree in accounting. Generic education requirements do not qualify. On-the-job training does not defeat the exemption if it also requires a specialized education.

This decision applies to all professions, including finance, education and engineering. As a result, all employers should ensure that:

Job descriptions, performance evaluations and other materials consistently:

Document the specialized education requirement; and
Emphasize the expectation that professionals will exercise judgment, including when to involve supervisors.

Job titles, such as "clerk," do not undermine the exemption.
Exempt and non-exempt employees do not share a job title.
A vast majority of employees in exempt learned professional positions have the required education, and their education levels are documented.

State exemptions may differ and the federal exemptions are currently under review by the US Department of Labor.

For more on the exemptions from the FLSA's minimum wage and overtime compensation requirements, see FLSA White Collar Exemptions Checklist.

Premium tax credits for health insurance exchanges

Large employers should take note of two conflicting circuit court decisions regarding whether premium tax credits are available to individuals who purchase coverage on the federally facilitated health insurance exchanges. Availability of the tax credits may impact whether employers are subject to health care reform's employer mandate.

Health care reform included a tax credit for certain low- and middle-income individuals to offset the cost of insurance policies purchased through the exchanges. In final regulations, the IRS took the view that the tax credits were available to individuals who purchase insurance on both the state-run and federally facilitated exchanges.

In Halbig v. Burwell, however, the DC Circuit rejected the IRS's broad interpretation of the statute and held that the health care reform law "unambiguously restricts" tax credits to insurance purchased on exchanges established by the states. The Fourth Circuit came to the opposite conclusion in King v. Burwell, deferring to the IRS's construction of the health care reform law.

Availability of the tax credits may impact penalties under the employer mandate, which apply if:

A large employer fails to offer its full-time employees adequate coverage.
One or more of the employees enrolls in a qualified health plan for which a tax credit is allowed or paid.

Absent the IRS's interpretation of the law, an employer would not face employer mandate penalties if credits are unavailable in states without a federally facilitated exchange.

For now, as the conflicting rulings are appealed and related cases work through the courts, the government has indicated that premium tax credits will continue to be provided for the federally facilitated exchanges.

For more on health care reform, see Practice Note: Health Care Reform: Overview and Employer Mandate Toolkit.

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