A story in the Business section Sunday incorrectly stated that a discrimination suit against Potomac Electric Power Co. has been settled. It is still to be decided in court. (Published 7/10/90)

Say what you want, but don't write it down.

That, at least, seems to be the latest lesson for corporate managers after a federal court ruled that internal management memos criticizing a company's minority hiring performance can be used against an employer charged with discrimination.

U.S. District Judge Royce C. Lamberth in the District of Columbia ruled that -- unlike confidential memos involving health and safety issues -- self-critical analysis by employers was not privileged and had to be made public if a company was sued over its hiring practices.

Lamberth said that in the area of health and safety, particularly in such areas as medical peer review, it was necessary to guarantee confidentiality.

The decision is the next logical step in a growing trend in labor law to make an employer legally responsible for whatever it puts in writing. In the last decade, promises made in handbooks and memos have become de facto contracts as more and more courts act to protect employees against wrongful discharge.

The case involved an employment discrimination suit by a group of employees against Potomac Electric Power Co. The employees had sought access to internal management documents that were critical of Pepco's hiring and promotion practices, but company lawyers insisted such documents were privileged.

In arguing that its memos were privileged information, Pepco said that disclosure would chill internal efforts to achieve an important social goal. If managers knew that such documents might someday find there way into the public domain, they said, that knowledge would stifle candid compliance with equal employment goals.

Proponents of privilege argue that the government, through various employment reporting requirements, should not compel companies to be candid in evaluating their strengths and weaknesses in meeting hiring goals and then force the employer to disclose the evaluations to employees who are suing them.

But Lamberth disagreed. In ruling that critical internal memos could not be protected from discovery in an employment discrimination lawsuit, Lamberth said "courts must be wary of shielding from discovery documents which may contain crucial information about the employers intent and motivation."

He said "the court should not merely examine whether allowing discovery of self-evaluative documents will chill employers candor in preparing those documents. The court must also consider whether candor influences the extent to which companies provide equal employment opportunities and whether private litigation is a better tool for advancing equality than is candid self-evaluation."

Lamberth said the government already requires most employers to file a number of documents about their hiring practices, and disclosure of self-critical analysis will not halt the flow of evaluative information.

Lamberth also wondered how much self-critical activity there was to be discouraged. "It is far from certain that employers actually engage in critical self-analysis when preparing government mandated reports," he wrote.

"Finally," he wrote, "because courts regularly consider compliance with an affirmative action plan as evidence of a defendant corporation's attention to a problem or as an affirmative defense to a claim of discrimination, companies have an incentive to set safe (i.e. low) goals to provide themselves with ready evidence of compliance."

Lamberth concluded that "the court questions whether disclosure will demonstrably decrease the progress toward equal employment opportunity."

If you assume that candor translates into better performance, he wrote, companies should not fear disclosure because that very candor will already be reflected in their hiring performance.

The Pepco case was settled. Details of the settlement are sealed and the issue has yet to be decided at the appeals court level.

William Kilberg, a former solicitor of labor and a leading employment lawyer in Washington, said, "There's no privilege for embarrassing material." He said Lamberth's ruling underscores the fact that "it is becoming increasingly difficult to communicate in writing and it's become increasingly important that corporate personnel reflect a complete story when they're writing" internal documents.

Quoting an old adage, he added: "If it can't be printed on the front page of the newspaper, don't write it."