When confronted with an internal employee complaint such as a sexual harassment claim, the company’s first reaction may be to use inside or outside legal counsel to investigate the complaint and advise the company on its response. Last week, the North Carolina Supreme Court warned employers that the investigation and communications with the attorney may not be privileged attorney-client communications.

In Buckley LLP v. Series 1 of Oxford Ins. Co., NC, LLC, the plaintiff sought disclosure of materials and communications related to an internal investigation conducted by legal counsel. The defendant objected to the request on the basis that the communications fell under the attorney-client privilege. The North Carolina Business Court conducted a detailed review of the materials and concluded that some of the requested information involved business and not legal advice.

On appeal, the North Carolina Supreme Court affirmed this ruling, ordering disclosure of the disputed information. The court noted that attorneys commonly provide both business and legal advice, and that only the legal advice falls under the privilege. This principle applies to work performed by in-house and outside counsel. The court used the example of a sexual harassment investigation as a routine business matter where communications about the investigation are not necessarily made in the course of providing legal advice.

For employers, this decision does not mean they should not use in-house or outside legal counsel to assist with internal investigations. However, the company should not assume that the interviews, notes, reports, and discussions between the lawyer and management will not be discoverable in the course of later litigation. Those discussions that do involve legal advice should be separate from the routine investigation and specifically designated as privileged attorney-client communications.