136 | 2025 Cal-Peculiarities ©2025 Seyfarth Shaw LLP www.seyfarth.com defendant had secured from a law firm, for the purpose of having the referee redact out and reveal to the plaintiffs the “facts” that the law firm had relied upon in rendering its legal advice.562 The California Supreme Court eventually issued a ringing endorsement of the attorney-client privilege, recognizing that confidential attorney-client communications are protected from discovery in their entirety, regardless of whether the facts contained therein are otherwise discoverable, and that courts cannot compel parties to submit documents to in camera review to determine whether the communication is privileged.563 5.19 Limits to Protection for Attorney Work Product Employers defending lawsuits often have defense counsel interview witnesses to investigate the plaintiff’s claims. The plaintiff’s counsel then asks the defendant employer, during pre-trial discovery, to serve up on silver platter the fruits of the defense counsel’s investigation. In a 2012 case, Coito v. Superior Court (State of California), the California Supreme Court addressed the degree of protection that courts should give to work product that an attorney creates while obtaining evidence from witnesses.564 In Coito, the defendant employer argued that both the identities of attorney-selected interviewees and the recorded witness statements were necessarily attorney work product (and thus could be withheld from the plaintiff).565 Coito made two relevant rulings. The first was that the identities of attorney-selected witnesses must be disclosed unless disclosure of them would “reveal the attorney’s tactics, impressions or evaluation of the case, or would result in opposing counsel taking undue advantage of the attorney’s industry or efforts.”566 The second ruling, more favorable to defendants, recognized that a witness statement obtained through an attorney-directed interview deserves “at least qualified work product protection.”567 Coito held that the party seeking the witness statements must show that withholding them would be unjust.568 Coito also stated that the statements potentially could be subject to an absolute work product protection, if the statements reflected “an attorney’s impressions, conclusions, opinions, or legal research or theories.”569 Whether an investigation by outside counsel is privileged can depend on whether counsel is performing a legal function or a purely business one.570 A factual investigation conducted by outside counsel that does not provide legal advice to the employer could nevertheless be subject to both the attorney-client privilege and attorney work product doctrine if outside counsel was not merely gathering information, but using expertise to “identify pertinent facts, synthesize the evidence, and come to a conclusion of what actually happened.”571 5.20 Employer’s Obligation to Withhold Taxes Due on Damages Judgment In America generally, an employer who pays money to settle a claim or satisfy a judgment can, and must, withhold income taxes and payroll taxes to the extent that the money represents lost income (back pay and front pay), because to that extent the payment, for purposes of the Internal Revenue Code, is wages. So it was that when United Airlines suffered a judgment in a California wrongful termination case, United withheld taxes from its payment of the judgment. Yet the California Court Appeal, in a 1992 opinion called Lisec v. United Airlines, held that United must pay the plaintiff the full amount of the judgment (and thus take its chances with the IRS) because the Court of Appeal, in an under-analyzed opinion that the IRS itself surely disagreed with, concluded that “the damages award was not ‘wages’ from which United was obliged to withhold taxes.”572 This California peculiarity finally came to an end in 2015, when a Court of Appeal decision challenged the Lisec holding. In considering a judgment against an employer for lost past and future wages, the Court of Appeal concluded that the employer “chose correctly” when it followed the “prevailing federal view” by withholding payroll
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