Can a non-employee, third-party consultant have a privileged communication with a company’s in-house counsel? In a matter of first impression, the Tennessee Court of Appeals said yes, adopting the functional-equivalent doctrine to apply the privilege to consultants whose conduct and behavior comport with company employees.
The court issued the ruling over the consultant’s employer’s objection and even though the governing contract stated that the consultant is not “an agent, legal representative, or partner … for any purpose.” Waste Admin. Servs., Inc. v. The Krystal Co., 2018 WL 4673616 (Tenn. Ct. App. Sept. 27, 2018) (Swiney, J.). You may read the opinion here.
Although many states, including Tennessee, have not fully defined the attorney–client privilege’s scope in the corporate counsel–employee context, a developing corollary is whether the privilege covers communications between a company’s lawyer, including in-house counsel, and its non-employee consultants.
Various courts apply the so-called functional-equivalent doctrine to uphold the privilege over a consultant’s communications with corporate counsel when that consultant is acting as the “functional equivalent” of an employee. Courts reason that, in today’s corporate world, there is no good reason to deny the privilege when a company outsources employee functions to third-party specialists. I previously discussed cases where courts applied the doctrine in C-Suite situations (see this post) and refused to apply the doctrine to public-relations firms (see this post).
Two Contracts—But Does it Matter?
So, what about Tennessee? Krystal contracted with Waste Administrative Services (WASI) to provide (you guessed it) waste-management services. A few years later, Krystal contracted with Denali Sourcing Services to examine and ultimately reduce its expenses. Krystal and Denali memorialized their consulting relationship with a Statement of Work which noted that Denali was not “an agent, legal representative, or partner [of Krystal] for any purpose.”
The SOW did not expressly cover waste management, but generally covered procurement projects “submitted via email.” Krystal’s CEO emailed Denali employee David Jungling asking him on “take the lead” on assessing Krystal’s relationship with WASI. A question arose whether and how Krystal could terminate its WASI contract, and Jungling emailed Krystal’s CLO about the matter.