Long-term Employment Agreements With In-house Counsel: Employment Security or Ethical Quagmire?

• Publication year: 2003
• Pages: 0002

Georgia Bar Journal Volume 9.

GSB Vol. 9, No. 3, Pg. 2. Long-Term Employment Agreements With In-House Counsel: Employment Security or Ethical Quagmire?

Georgia State Bar Journal
Vol. 9, No. 3, December 2003

"Long-Term Employment Agreements With In-House Counsel: Employment Security or Ethical Quagmire?"

By Richard Moberly and John Hutchins

The relationship between a company and its in-house corporate counsel involves a fragile mixture of the corporate counsel's fiduciary obligations as the company's attorney and the company's legal and contractual responsibilities as the attorney's employer. Although these roles and expectations often blend smoothly, the relationship can become problematic when the corporate counsel's position as an attorney conflicts with the counsel's status as an employee. Put another way, when a company's expectations as a client are at odds with its responsibilities as an employer, the relationship between the employer-client and the employee-attorney can become strained and expose each to difficulty, if not liability

One situation that may breed such tension occurs when an in-house attorney enters into a long-term employment contract with an employer-client. In a typical attorney-client relationship between a company and its outside counsel, the client may terminate its relationship with its attorney at any point.1 The attorney would be entitled to quantum meruit, or payment for services rendered but the attorney would not be entitled to payment for loss of future fees, even if the client already agreed to such payment.2 In this situation, the law gives priority to the client's right as the beneficiary of a fiduciary relationship with its attorney to terminate the relationship (the client's "beneficiary rights")

A long-term employment contract with a corporate or in-house counsel, however, involves subtle, but important, differences. Depending on how such a contract is structured and the current state of the law in the jurisdiction at issue, in-house counsel may have an argument that the contract obligates the client to a continued employment relationship, even if the client desires to terminate the attorney-client relationship. If true, this would infringe upon the client's ability to terminate its relationship with its attorney immediately (or without future consequence). Enforcing this type of contract would implicitly value an attorney's contractual rights more than a client's beneficiary rights

Thus, when an in-house counsel enters into a long-term employment contract with a client, a tension is created between the client's beneficiary rights and the attorney's contractual rights. This article addresses two issues that may arise as a result of this tension.

First, it is unresolved in Georgia whether long-term employment contracts are enforceable by in-house counsel through a breach of contract action. In Georgia, "express contracts between attorney and client as to compensation are generally recognized."3 At the same time, it is also the state's public policy that "a client has the absolute right to discharge the attorney and terminate the relation at any time, even without cause."4 At the intersection of these two competing forces are long-term employment contracts for in-house counsel. For example, a long-term contract that provides for a significant severance benefit should the employment be terminated prematurely may arguably limit the ability of a corporation to terminate the attorney's employment. Whether a discharged in-house attorney may succeed in a breach of contract action against a former employer is entirely dependent upon whether this type of contract is enforceable.

Second, if a general counsel is permitted to bring a breach of contract action against an employer-client, the limits on the attorney's ability to use the client's own confidential information against the client in that litigation are somewhat murky. This issue has been hotly debated in other jurisdictions in the context of wrongful discharge claims, but the issues are relevant even in a breach of contract action. Georgia's Rule of Professional Conduct 1.6 provides some guidance, in that it only permits an attorney to reveal a client's confidential information if the attorney reasonably believes it is necessary "to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client."5 In application, however, that standard can be difficult to apply, particularly in the context of an attorney taking the offensive against a client based upon a breach of contract claim.

Unfortunately, neither of these issues is resolved easily under current Georgia law, which should be unsettling to Georgia's in-house counsel and their clients alike.

THE ENFORCEABILITY OF A LONG-TERM EMPLOYMENT CONTRACT FOR GEORGIA'S IN-HOUSE COUNSEL

Two seminal Georgia cases dominate the issue of the enforceability of a long-term employment contract between a company and its in-house counsel: Henson v. American Family Corp.6 and AFLAC, Inc. v. Williams.7 These cases, however, reach differing conclusions regarding the balance between a company's beneficiary rights as a client and an attorney's contractual rights as an employee.

Henson v. American Family Corp.: Contracts Should Be Enforced

In 1984, the Georgia Court of Appeals determined that a discharged general counsel could bring a breach of contract action against his former employer under a long-term retainer contract.8 In Henson, a company and its general counsel executed a ten-year employment contract, "subject to removal by action of the board [of directors] at any time it shall be deemed necessary."9 Six years later, the board removed the general counsel.10 As part of litigation resulting from the termination, the general counsel filed a breach of contract claim to obtain the fee for the remainder of his contract.11

In permitting the action to go forward, the Court of Appeals rejected the company's argument that such a long-term retainer contract is against public policy. Relying on a 1922 Georgia Supreme Court case, the Court of Appeals stated that express contracts between an attorney and client are generally recognized, even if the contemplated services are not rendered.12 The Henson court stated that it was aware of no public policy precluding the enforcement of such contracts.13 Therefore, although the board of directors was permitted to remove the general counsel, the company was bound by the general counsel's contractual rights.14

AFLAC, Inc. v. Williams: The Client Has the Absolute Right to Fire Its Attorney

The public policy apparently hidden from the Henson court was identified a decade later by the Georgia Supreme Court in AFLAC, Inc. v. Williams.15 In AFLAC, the Court held that a long-term retainer contract for an outside counsel was unenforceable because it contained a penalty clause if the client prematurely terminated the contract.16 Under the contract in AFLAC, the company paid an outside counsel a monthly retainer under a seven-year contract; however, if the company terminated the contract early, even for good cause, it agreed to pay "as damages an amount equal to 50 percent of the sums due under the remaining terms, plus renewal of this agreement."17

The Court relied upon important public policies underlying the attorney-client relationship to determine that such a contract was unenforceable.18 Specifically, the Court held that this contract was void as against public policy, because "[r]equiring a client to pay damages for terminating its attorney's employment contract eviscerates the client's absolute right to terminate. A client should not be deterred from exercising his or her legal right because of economic coercion."19 The Court consciously chose to uphold the client's beneficiary rights to the detriment of the attorney's contractual rights: "To force all attorney-client agreements into the conventional status of commercial contracts ignores the special fiduciary relationship created when an attorney represents a client."20

Yet, despite this apparent rejection of Henson's reasoning, the AFLAC court distinguished Henson, without expressly overruling it, by basing...