Employers and Employees

This paradigm, too, has been attacked by prosecutors and now has largely disappeared in major federal and some state investigations. It has been succeeded by a new, far harsher paradigm. Now, in order to enter into an agreement for a plea, deferred prosecution, or non-prosecution, corporations generally must show “cooperation.”

'Cooperation'

These days, federal prosecutors' requirements for “cooperation” commonly include that: 1) the target corporation not advance legal fees and expenses for employees the prosecutors suspect of wrongdoing; 2) the corporation discharge such employees or put them on unpaid leave; 3) there be no joint defense agreement between the corporation and such employees; 4) the corporation conduct its own internal investigation and share its fruits with the prosecutors (i.e., waive the privilege); and 5) the corporation disclose to the prosecutors what relevant information it shares with any employees. In some circumstances, corporations feel obliged by the need to satisfy prosecutors and/or by market forces to take disciplinary action against employees who independently decide to assert the Fifth Amendment privilege or otherwise not cooperate with the prosecutors.

Of course, if a corporation intends to defend against any criminal charges and not to enter into any agreement with the prosecutors, it can proceed in accordance with the second paradigm. The reason why corporate boards and managements acquiesce in prosecutorial demands is plain: they have a fiduciary duty to act in the best interest of their institutions (and especially their shareholders), not in the best interests of particular employees where the employees' interests conflict with those of the institution. Where the corporate interest is best served by resolving a criminal investigation relatively speedily through an agreement (particularly one that protects vital corporate interests) rather than prolonging it through full adversarial proceedings, a corporation commonly must pay the price in “cooperation.”

What Employees Are Owed

In these circumstances, what does a corporation owe employees who, in the corporation's view, have acted in what they reasonably believed was the corporation's best interest? What does it owe them not as a matter of law, but as a matter of decency, fairness, and humaneness? I put aside matters of law — obligations imposed, e.g., by the corporate law of the place of incorporation, corporate bylaws, or a particular employee's employment contract. Of course, a corporation should comply with its legal obligations to its employees (though, after such obligations have been incurred, prosecutors may grumble that they ought not have been incurred). Here are one lawyer's thoughts about less formally grounded duties.

A corporation ought to describe the current paradigm in its corporate standards of conduct or similar document distributed to all employees. Drawing on public materials, the discussion might be merely descriptive of what other companies have done; it need not commit the corporation to any particular actions if it were to come under criminal investigation. Such a discussion, however, would give employees fair warning of what might occur in the event of an investigation and would alert them not to have unrealistic expectations of corporate support.

If and when an investigation does occur, it is common for companies at the outset to explain to the employees who will be involved the nature of the process they and the company will be going through, to alert them to the possibility that the government will contact them, to give them some advice on how they should conduct themselves during the investigation, and to warn them against obstruction. To those standard features might be added some explanation of the new environment in which corporate criminal investigations are conducted.

In interviewing an employee in an internal investigation, company counsel generally explain that they represent the company and not the employee being interviewed, that their loyalty is owed to the company, that it's the company's call whether to protect or waive any legal privileges applying to the interview, and that whatever is said may be disclosed to corporate superiors. Nowadays, I think these common warnings should be supplemented to reflect the new circumstances: that the corporation may later waive the privilege, that what is said may be disclosed to the prosecutors, and that any false answers by an employee may be treated by the prosecutors as obstruction of justice — a serious crime.

Without undue delay, a company should advise those employees it believes need counsel to get counsel, even if the company won't pay for it. Particularly if the company is urging an employee to cooperate with prosecutors or is exposing the employee to additional legal risk (by, for example, having the employee testify in relevant civil litigation or at a congressional hearing), it should advise the employee to consult independent counsel.

Corporate Interest

While helping a loyal employee protect himself or herself is the decent thing to do, the company should try to reconcile its corporate interest with common decency. If the corporation can achieve its objective while, for example, advancing legal fees or giving employees copies of documents produced to prosecutors, it should do so. In sharing information, a corporation usually can serve its own needs and those of its employees without becoming part of a joint defense agreement: generally, the employees don't need privileged information from the corporation, and the company doesn't need privileged information from them. Sharing of non-privileged information can be mutually very beneficial.

If a corporation is pressured by prosecutors to take disciplinary action against particular employees, it nevertheless should provide them a fair internal process before taking the action. If the basis for the action is suspected wrongdoing, they should be given a chance to address the suspicion, even though they may well decline. If the basis is a refusal to cooperate with prosecutors, the employees should be given a clear chance to change course, even if they are likely to reject it.

In negotiations with prosecutors, the corporation's counsel should seek the best possible outcomes for individual employees. Persuading prosecutors that any wrongdoing was less serious than they initially thought, and/or that fewer employees were culpably involved in it, not only helps the employees, but also results in less wrongdoing to ascribe to the corporation.

Corporate counsel may also be better positioned than counsel for individuals to make certain kinds of arguments for lack of culpability or in mitigation. For example, because they do not represent the individuals, they may be more effective in arguing for fairness toward them — e.g., that they should not be cut off from advancement of legal fees and should not be summarily deprived of their livelihoods. Counsel may also be able to facilitate networking among the lawyers for individuals.

In many investigations these days, the need to “cooperate” with prosecutors will limit the kinds of support a corporation and its counsel can provide to individual employees. Nevertheless, there are still many ways for a company to help. Where a corporation believes that its employees have acted in what they reasonably believed was the best interest of the corporation, it should provide as many of the traditional kinds of support as circumstances permit.

When I entered law practice in 1971, it was common in corporate criminal investigations for a single law firm to represent the target corporation and all its relevant employees. They hung together lest they hang separately. Over time, practice changed, and such joint-representation arrangements mostly disappeared.

The old paradigm was succeeded by a new one, which recognized the separate interests of the corporation and each of its relevant employees, but also provided a large measure of mutual support and good will on the defense side. It commonly operated as follows.

The corporation would help its employees find separate lawyers, and it would advance their fees and expenses. The corporation and its employees would enter into a joint defense agreement, under which, through networking by counsel, there would be a broad sharing of information between the corporation and its employees, and among the employees themselves. The agreement would preclude disclosure to the prosecutors of any shared information that was privileged. If valued employees had to be put on leave, the leave would be with pay. Eventually, if a corporate crime were found, the corporation would plead guilty. In negotiating the plea agreement, it would do its best to secure non-prosecution of its employees. Each employee would be free to pursue his or her own interest, and in doing so would have the benefit of all the help provided by the corporation.

This paradigm, too, has been attacked by prosecutors and now has largely disappeared in major federal and some state investigations. It has been succeeded by a new, far harsher paradigm. Now, in order to enter into an agreement for a plea, deferred prosecution, or non-prosecution, corporations generally must show “cooperation.”

'Cooperation'

These days, federal prosecutors' requirements for “cooperation” commonly include that: 1) the target corporation not advance legal fees and expenses for employees the prosecutors suspect of wrongdoing; 2) the corporation discharge such employees or put them on unpaid leave; 3) there be no joint defense agreement between the corporation and such employees; 4) the corporation conduct its own internal investigation and share its fruits with the prosecutors (i.e., waive the privilege); and 5) the corporation disclose to the prosecutors what relevant information it shares with any employees. In some circumstances, corporations feel obliged by the need to satisfy prosecutors and/or by market forces to take disciplinary action against employees who independently decide to assert the Fifth Amendment privilege or otherwise not cooperate with the prosecutors.

Of course, if a corporation intends to defend against any criminal charges and not to enter into any agreement with the prosecutors, it can proceed in accordance with the second paradigm. The reason why corporate boards and managements acquiesce in prosecutorial demands is plain: they have a fiduciary duty to act in the best interest of their institutions (and especially their shareholders), not in the best interests of particular employees where the employees' interests conflict with those of the institution. Where the corporate interest is best served by resolving a criminal investigation relatively speedily through an agreement (particularly one that protects vital corporate interests) rather than prolonging it through full adversarial proceedings, a corporation commonly must pay the price in “cooperation.”

What Employees Are Owed

In these circumstances, what does a corporation owe employees who, in the corporation's view, have acted in what they reasonably believed was the corporation's best interest? What does it owe them not as a matter of law, but as a matter of decency, fairness, and humaneness? I put aside matters of law — obligations imposed, e.g., by the corporate law of the place of incorporation, corporate bylaws, or a particular employee's employment contract. Of course, a corporation should comply with its legal obligations to its employees (though, after such obligations have been incurred, prosecutors may grumble that they ought not have been incurred). Here are one lawyer's thoughts about less formally grounded duties.

A corporation ought to describe the current paradigm in its corporate standards of conduct or similar document distributed to all employees. Drawing on public materials, the discussion might be merely descriptive of what other companies have done; it need not commit the corporation to any particular actions if it were to come under criminal investigation. Such a discussion, however, would give employees fair warning of what might occur in the event of an investigation and would alert them not to have unrealistic expectations of corporate support.

If and when an investigation does occur, it is common for companies at the outset to explain to the employees who will be involved the nature of the process they and the company will be going through, to alert them to the possibility that the government will contact them, to give them some advice on how they should conduct themselves during the investigation, and to warn them against obstruction. To those standard features might be added some explanation of the new environment in which corporate criminal investigations are conducted.

In interviewing an employee in an internal investigation, company counsel generally explain that they represent the company and not the employee being interviewed, that their loyalty is owed to the company, that it's the company's call whether to protect or waive any legal privileges applying to the interview, and that whatever is said may be disclosed to corporate superiors. Nowadays, I think these common warnings should be supplemented to reflect the new circumstances: that the corporation may later waive the privilege, that what is said may be disclosed to the prosecutors, and that any false answers by an employee may be treated by the prosecutors as obstruction of justice — a serious crime.

Without undue delay, a company should advise those employees it believes need counsel to get counsel, even if the company won't pay for it. Particularly if the company is urging an employee to cooperate with prosecutors or is exposing the employee to additional legal risk (by, for example, having the employee testify in relevant civil litigation or at a congressional hearing), it should advise the employee to consult independent counsel.

Corporate Interest

While helping a loyal employee protect himself or herself is the decent thing to do, the company should try to reconcile its corporate interest with common decency. If the corporation can achieve its objective while, for example, advancing legal fees or giving employees copies of documents produced to prosecutors, it should do so. In sharing information, a corporation usually can serve its own needs and those of its employees without becoming part of a joint defense agreement: generally, the employees don't need privileged information from the corporation, and the company doesn't need privileged information from them. Sharing of non-privileged information can be mutually very beneficial.

If a corporation is pressured by prosecutors to take disciplinary action against particular employees, it nevertheless should provide them a fair internal process before taking the action. If the basis for the action is suspected wrongdoing, they should be given a chance to address the suspicion, even though they may well decline. If the basis is a refusal to cooperate with prosecutors, the employees should be given a clear chance to change course, even if they are likely to reject it.

In negotiations with prosecutors, the corporation's counsel should seek the best possible outcomes for individual employees. Persuading prosecutors that any wrongdoing was less serious than they initially thought, and/or that fewer employees were culpably involved in it, not only helps the employees, but also results in less wrongdoing to ascribe to the corporation.

Corporate counsel may also be better positioned than counsel for individuals to make certain kinds of arguments for lack of culpability or in mitigation. For example, because they do not represent the individuals, they may be more effective in arguing for fairness toward them — e.g., that they should not be cut off from advancement of legal fees and should not be summarily deprived of their livelihoods. Counsel may also be able to facilitate networking among the lawyers for individuals.

In many investigations these days, the need to “cooperate” with prosecutors will limit the kinds of support a corporation and its counsel can provide to individual employees. Nevertheless, there are still many ways for a company to help. Where a corporation believes that its employees have acted in what they reasonably believed was the best interest of the corporation, it should provide as many of the traditional kinds of support as circumstances permit.