The attorney-client privilege protects communications between a lawyer and a client from disclosure in a legal proceeding. But in the realm of ERISA law, it’s not so absolute.
Legally, plan fiduciaries must protect the best interests of plan beneficiaries. But what happens when a plan fiduciary communicates with an attorney about an ERISA-covered retirement plan?
In this situation, the so-called “fiduciary exception” to the attorney-client privilege may come into play. Generally, a person or entity acting in the capacity of an ERISA fiduciary cannot assert the attorney-client privilege against plan beneficiaries on matters of plan administration. This means that such communication may be seen by plan participants (the beneficiaries), their attorneys or even the U.S. Department of Labor.
However, courts have created exceptions to the exception. In these situations, the attorney-client privilege will apply to protect the communication. Specifically, communications involving the plan’s start-up, amendment or termination aren’t considered fiduciary functions and are, thus, protected under the privilege. In addition, communications related to defending fiduciaries in adversarial proceedings fall under the privilege. This may include communications regarding a fiduciary’s personal defense against a claim of breach of fiduciary duty.
When determining whether the attorney-client privilege or the fiduciary exception applies in a given situation, courts will try to determine whether the interests of the fiduciaries and plan participants have diverged. If so, the communications with an attorney generally are shielded from discovery. To help determine this, courts consider:
- Whether plan participants have retained an attorney,
- The prospect of litigation, and
- Whether the fiduciary and the attorney have discussed potential litigation and if the fiduciary paid the attorney out of personal rather than plan funds.
Legal actions involving fiduciaries and the attorney-client privilege can be complicated. Remember that the attorney-client privilege may protect less than you think.