Hiring Lawyers for Employees Under Investigation

Your company comes under investigation and specific employees are implicated. What is the right way to get lawyers for those employees? Assuming the company is picking up the cost of the lawyers, the company usually wants to have some input on the selection.

A recent New Jersey case highlighted some of the issues involved for the company and the lawyers involved. In the Matter of the State Grand Jury Investigation (A-80-08) highlighted the ethical issues.

The court laid  it out simply that the Rules of Professional Conduct forbid a lawyer from accepting compensation for representing a client from one other than the client unless six conditions are satisfied:

  1. The client gives informed consent.
  2. There is no interference with the lawyer’s independence of professional judgment or with the lawyer-client relationship.
  3. There is no current attorney-client relationship between the lawyer and the third-party payer.
  4. Information relating to the representation of the client is protected.
  5. The third-party payer must pay the invoices in its regular course of business.
  6. Once the third-party payer commits to pay, they need to get court approval to stop.

In this case Laidlaw International, Inc. was under investigation, with a focus on three employees.  The company hired four lawyers, one for each named employee involved and a fourth for all non-target current and former employees. The retainer agreements provided that the company would be responsible for the lawyer fees, but the lawyers’ professional obligation was to the individual employees only. The lawyers were not required to make disclosures to the company, and payment of the legal fees was not conditioned on the lawyers’ cooperation with the company.

That arrangement is fairly standard. But the state attorney objected and want to disqualify the company-paid lawyers for the employees. “The attorney maintains a sense of loyalty to the party paying him,” said Deputy Attorney General Frank Muroski told the Court at oral arguments. “The lawyer must suspect that the fee payer expects to have its interests protected.”

The court denied that there is an per se conflict. But there should be safeguards in place as outlined in the six conditions.

One key practice tip for the lawyers is that there must be a careful and conscientious redaction of all detail from any billings submitted to the third-party payer.