Companies under Criminal Investigation May Retain Counsel for Employees

November 25, 2009 ( – The New Jersey Supreme Court has ruled that companies under criminal investigation may -- subject to conditions -- retain counsel for their employees who are also targets or may become witnesses, the New Jersey Law Journal reports.

With its unanimous decision, the court gave its official approval of an Illinois company’s provision of a list of preapproved attorneys that employees could retain free of charge. The court said as long as the employer does nothing to interfere with the lawyers’ representation of those employees, the retainers comply with the Rules of Professional Conduct, according to the news report.


The ruling lists six rules a company must follow if it chooses to pay for legal representation for employees in a criminal case also involving the company:


  • The informed consent of the client is secured.
  • The third-party payer is prohibited from, in any way, directing, regulating or interfering with the lawyer’s professional judgment in representing the client.
  • There can be no current attorney-client relationship between the lawyer and the third-party payer.
  • The lawyer is prohibited from communicating with the third-party payer concerning the substance of the representation of his client.
  • The third-party payer shall process and pay all such invoices within the regular course of its business, consistent with the manner, speed and frequency it pays its own counsel.
  • Once a third-party payer commits to pay for the representation of another, that payer shall not be relieved of its continuing obligations to pay without leave of court.








The court found those conditions satisfied in the case of Laidlaw International Inc., a national school bus services contractor that offered counsel to its employees when it learned in 2007 it was under investigation by the New Jersey Division of Criminal Justice. The state had moved to have company-compensated attorneys disqualified from representing the employees, saying the payment relationship with the company created an impermissible conflict of interest.

Considerations for Providing Counsel to Employees

Writing for the court, Justice Roberto Rivera-Soto cited three Rules of Professional Conduct (RPC) that together provided a set of working principles for companies who wish to retain counsel for employees:


  • RPC 1.7(a)(2), forbidding a lawyer from representing a client "if the representation involves a concurrent conflict of interest."
  • RPC 1.8(f), controlling the circumstances in which a lawyer may accept compensation for representing a client from one other than the client.
  • RPC 5.4(c), prohibiting a lawyer from allowing a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such services.






"A synthesis of RPCs 1.7(a) (2), 1.8(f) and 5.4(c) yields a salutary, yet practical principle: a lawyer may represent a client but accept payment, directly or indirectly, from a third party provided each of the six conditions is satisfied," Rivera-Soto said, according to the New Jersey Law Journal.


The court found the retainer agreements signed by Laidlaw employees satisfied each of those conditions, as none of the lawyers had any prior relationship with the company; the employees were told they could retain counsel on their own, but said they were satisfied with the attorneys approved by the company; the lawyers acknowledged that their primary obligation was to the employee; and the retention letters said the lawyers were not required to disclose any "legal strategy, theory, plan of action, or the like" to the company.


Rivera-Soto made suggestions for how to make the retainers even more ethically bullet-proof. "For the avoidance of future doubt, such retention letters should clearly and conspicuously note that nothing in the representation shall limit the lawyer's responsibilities to the client," and regarding keeping client confidences, he said "the better practice is to affirmatively state that the lawyer will not disclose any part of the substance of the representation of the client to the third-party payer."


He added:"Consistent with that representation, all billings from the lawyer to the third-party payer must have any detail information redacted, simply stating the sum due for services rendered and the sum due for expenses incurred."


Summarizing, Rivera-Soto said that "through the combined product of good faith of an employer, the diligence of competent counsel and the exercise of a trial court's supervisory authority, the net result of the company's retention and payment of counsel for its employees complies with the Rules of Professional Conduct," according to the news report.

The court's ruling is here .