How Does the Privilege Apply to Independent Contractors Who are the “Functional Equivalent” of Employees?

January 8, 2004

Well-settled principles apply the attorney-client privilege to a company’s lawyer’s communications with company employees, but not with third parties such as consultants or agents (except in limited circumstances). How does the law treat non-employees who fall somewhere in between these two extremes—independent contractors who are the “functional equivalent” of employees?

Starting about ten years ago, a number of courts began to treat these independent contractors in the same way as they would treat full-time employees. See In re Bieter Co., 16 F.3d 929, 937 (8th Cir. 1994). This represents an enormously important expansion of the privilege, but courts will not apply this new doctrine unless the party asserting it satisfies the “functional equivalent” standard. See In re Currency Conversion Fee Antitrust Litig., MDL No. 1409/M 21-95, 2003 U.S. Dist. LEXIS 18636, at *9 (S.D.N.Y. Oct. 21, 2003) (finding that defendant First USA Bank could not rely on the doctrine to protect from disclosure communications with employees of a company providing computing, consulting and other support services to credit card issuers, because they were not the “functional equivalent” of First USA Bank employees).

As companies increasingly outsource corporate functions, the “functional equivalent” doctrine provides a key argument in protecting corporate communications.