When an employee of a company is accused by a third party or another employee of wrong doing, it is clear that the company is under an obligation to engage in an immediate and appropriate investigation to determine what occurred and take appropriate corrective action. Typical situations are reports of discrimination or harassment, bribery or theft. To ignore the complaints may expose the company to liability and possible violation of State or Federal law.
It must be noted, however, that the investigation, often performed by in house or general counsel, can itself lead to potential problems and liabilities and must be undertaken with clear written procedures and guidelines in place. Such guidelines should be imposed as standard company policy long before the alleged transgression occurred to avoid making mistakes in the charged atmosphere that can occur once a complaint is made.
Such policies are also necessary to avoid dangers inherent in certain types of complaints-for example, having alternative persons to complain to as to harassment is vital if the person complained of may be the supervisor of the employee. The policies should be communicated to the employee and the alternative lines of communication clearly stated.
This article shall concentrate on the unique role of general counsel in the investigation since it is vital to ensure that the employee being investigated does not confuse the true nature of the counsel’s role.
Representing Only the Company:
When investigating potential wrongdoing by an employee in areas from securities regulation to employment discrimination claims, an in-house or corporate attorney's fundamental rule is required to be that the client is always the company and not its employees.
Further, general or in-house counsel must also disclose this fact early and often to the employee being interviewed or investigated. Under the Model Rules of Professional Conduct, the lawyer must act to counter any apparent misunderstandings of this issue, which can be widespread even among senior employees.
Failure to point out the focus of the lawyer's loyalties and the fact that the company may disclose any information elicited to the government or other outsiders could lead to suppression of the evidence and sanctions against the attorney. Investigating counsel should keep written notes to substantiate that these disclosures were made and, if possible, should have witnesses present who can confirm the disclosure action.
Employee’s Counsel Present?
The company is not ethically or legally required to notify employees that they have the right to consult their own attorneys or that they may refuse to speak to the company's lawyer before speaking with their own. Although in-house counsel must inform the employees that failing to provide information to the company can result in adverse employment action, including termination, the company can demand compliance immediately, before the employee has time to consult an attorney. Practically speaking, however, taking such a hard line, can undermine the quality of information received, as well as to sour relations generally and hinder future employee cooperation. Depending on the severity of the matter alleged and the need for alacrity in concluding the investigation, it may very well be a good idea to recommend to the employee that they should first seek legal advice before answering questions. See our article on Employee Discipline and Termination.
Joint Representation and Sharing of Expenses?
Despite the clear delineation of responsibility when the company and its employees have adverse interests in an investigation, joint representation of company and employee is sometimes both ethically feasible and operationally preferable. For example, a company's indemnification policies and D&O insurance (or occasionally—as in California—state labor law) might call for advancing or reimbursing employee defense costs, or the company might wish to signal its solidarity with its employees.
In these instances, joint representation is expedient and cost-effective, so long as circumstances do not indicate adverse interests. It is vital, however, to disclose that joint representation must cease—and that house counsel will continue to represent the company—as soon as the slightest divergence of interest appears.
Quite often a wise employee will retain “shadow counsel,” ready to step in if and when such adverse interest becomes clear. Such counsel will not appear at the hearings or in court unless conflicts do appear but is made aware of the proceeding so that he or she is capable of rapidly entering the case if necessary.
While advancement of legal fees to the employee is seldom mandatory, the practice is customary. The company usually obtains an undertaking from the employee to repay the advances if it proves that the employee did not merit indemnification under the corporate policy.