S.D.N.Y. Issues Frightening Waiver Decision in Employment Case

June 23, 2021

Wise employment lawyers know that they should never be the decision makers when a client terminates an employee. Instead, those lawyers should be one of many inputs into the business person's decision to terminate.

In Kahlon v. Project Verte Inc., No. 20-cv-3774 (MKV), 2021 U.S. Dist. LEXIS 75825 (S.D.N.Y. Apr. 20, 2021), the Southern District of New York (Judge Vyskocil) addressed a terminated employee plaintiff's effort "to compel production of a memo, prepared by corporate counsel, about the basis for his termination that Defendant . . . has withheld on the basis of attorney-client privilege." Id. at *1. After reading the memo in camera, the court noted that it "opines that Kahlon’s refusal to sign certain convertible notes justified firing him for cause" — and that "[t]he memo was read aloud to the Board at the meeting where the Board voted to fire Kahlon." Id. at *1-2. The defendant "argue[d] that there is another 'source of direct proof' on the Board’s reasons for Kahlon’s termination" — the Board minutes. Id. at *2-3. The court rejected defendant’s argument, and ordered the memo produced. Noting that the Board minutes "do not reflect the contents of the memo or the Board's reasoning," the court pointed to defendant's "recent letter to the Court describing the grounds for its contemplated motion for summary judgment . . . [which] asserts that it was '[a]cting on the advice of counsel' when it fired Kahlon." Id. at *3 (third alteration in original).

This scenario presumably plays out constantly in termination decision scenarios. Perhaps the court's inexplicable decision rested on defendant's affirmative "advice of counsel" grounds for seeking summary judgment. Companies should never do that without weighing the obvious risk of an implied waiver of attorney-client privilege protection. But most courts would give a company the chance to abandon that reliance on a lawyer's advice, and instead defend the termination by pointing to the actual facts justifying it.

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