A recent judicial decision helps make compliance a little less risky

In a world thick with laws, it is unfortunately to be expected that law would not only make C&E program measures necessary – it would also make them more difficult.  The latest instances of this (at least in the U.S.) are decisions/guidance by the National Labor Relations Board which limit the ability of companies to prohibit certain conduct in social media policies – such as disclosing confidential information from the workplace – that is basic to any C&E program. (See this article for more information.)

Over the years another source of “law versus law” tension in the C&E field has concerned the area of defamation.   Specifically, the danger is that those investigating and otherwise addressing wrongdoing in the workplace will, for such efforts, find themselves on the wrong end of a defamation suit.  (Defamation law also has a chilling effect on doing background checks of prospective hires – another a negative from a C&E perspective.)

Because of this tension, some C&E practitioners have been closely watching the progress of Shell Oil Company v Writt through the Texas state courts.  The case involved a defamation suit brought by an employee of Shell regarding the results of an internal investigation into possible FCPA violations that was provided to the Department of Justice. He said that the report falsely accused him of bribery.

The company asserted that in this context its report was absolutely privileged. The trial court agreed, and dismissed the suit.  (The employee was allowed to proceed to trial on a wrongful termination claim, but the jury ruled against him on that.) However, an appeals court reversed the trial court’s decision on privilege.  Last Friday, the Texas Supreme Court reversed the appeals court, upholding the claim of absolute privilege, on the grounds that Shell’s report was “preliminary to a proposed judicial proceeding”. (The court’s decision can be found here.)

By way of background, Texas and other states have traditionally offered absolute immunity with respect to comments made in judicial proceedings.  This is only fair given that participation in judicial proceedings can be compulsory and that complete candor is necessary to the operation of such proceedings

But the question in the Shell case is how does this apply to companies’ theoretically voluntary dealings with DOJ – an important issue for C&E personnel given how much the real action involving the prosecution of companies occurs not in courtrooms but in prosecutors’ offices.  Citing the Sentencing Guidelines, DoJ enforcement policy and huge FCPA penalties as establishing powerful incentives for companies to cooperate with the DOJ, the court held that Shell was indeed entitled to absolute privilege in the setting presented by this case.

Finally, note that my brief summary of the decision leaves out the court’s doctrinal analysis of different privileges under Texas law, as I believe what will be most interesting to readers of this blog is the big-picture view of law helping to make compliance less legally risky.  At least a little less.