When principles clash: the in-house counsel as renegade or whistleblower.

• Author: Dillard, Stephen C.

An in-house attorney employed by a petro-chemical company is fired. In response, he sues the employer, contending that he was fired for insisting that the employer comply with various federal and state environmental laws. He asks the court to expand the retaliatory discharge exception to the employment at-will doctrine to in-house lawyers discharged for refusing to violate the law. Does the in-house attorney have a cause of action?(1)

IN-HOUSE COUNSEL ISSUES

The attorney-client relationship generally is an at-will employment. Rule 1.16(a)(3) of the American Bar Association Model Rules of Professional Conduct provides that the client has the right to counsel of its choice and the fight to discharge counsel at any time without cause. The rule also states that if an attorney is terminated by the client, the attorney must withdraw from representation. It has been suggested, however, that these traditional rules should be modified within the context of the in-house attorney relationship because of the unique economic and moral dilemma faced by in-house counsel.(2)

As many corporations have turned inward for legal services, the number of in-house counsel has increased. This phenomenon has its roots in a number of factors, ranging from cost-cutting measures to the increasing number of regulatory standards applicable to corporations. The rise in the number and responsibility of in-house attorneys has created a new concern for "dual loyalties" of in-house counsel: whether they owe their primary duty to the public interest as an "officer of the court" and member of the bar or, on the other hand, to the employer-client, which is the sole source of income. In-house counsel are placed in the position of serving both the client's wishes and the law's demands. Conflicts can arise.

The duties and obligations of in-house attorneys have been the focal point of significant debate in recent employment litigation. The most significant questions have arisen regarding whether in-house attorneys have the right to sue their employers for retaliatory discharge when they are dismissed for allegedly refusing to violate their professional ethical obligations or for urging their employers to comply with the law.

The level of protection, if any, now provided for "whistle-blowing" in-house attorneys is unclear. The few courts that addressed the issue have produced conflicting decisions in determining whether to provide protection. Courts that have decided these case generally focus on two areas: the sanctity of the attorney-client relationship and professional conduct rules.

This uncertainty in the law poses problems for both in-house attorneys and corporate employers. The lack of uniformity among the states creates special problems for in-house attorneys with multistate responsibilities.

LAW OF RETALIATORY DISCHARGE

"Whistle-blowing" is the term given to the body of law that protects employees discharged for refusing to violate the law or for reporting their employer's wrongdoing. Whistle-blower suits are intended to encourage employees to object to and report unlawful conduct by their employer by deterring employers from firing workers who blow the whistle, thus ultimately reducing unlawful conduct by employers. In recognizing whistle-blower protection, public policy decision-makers have determined that the public's interest in ensuring that corporations obey the law may outweigh the employer's interest in maintaining absolute control of the workplace.(3)

The retaliatory discharge cause of action is derived from the public policy exception to the employment at-will doctrine. Under the employment at-will doctrine in its pure form, an employer may terminate an employee without reason and without incurring any liability to the employee. As one commentator states: "The public policy exception to the at-will employment rule has generally been recognized when an employee is discharged for his or her activities in contravention of a clearly mandated public policy."(4) The law of retaliatory discharge prevents an employer from firing the whistle-blowing employee by requiring restitution and back pay. "Courts and legislatures granting this cause of action have concluded that given the nature of the workplace, such a remedy is necessary to preserve employees' ability to assert their rights and to promote the interests of the public."(5) By the mid-1980s, a majority of the states, either statutorily or judicially, had adopted the retaliatory discharge cause of action as a restraint on an employer's historical at-will power of termination.(6)

The action generally is recognized when (1) an employer discharges an employee in retaliation for employee activities, and (2) the discharge contravenes a clearly mandated public policy.(7) The scope of the action, however, is narrower than the public policy exception from which it is derived. The employee must be discharged in retaliation for the employee's activities, whereas the public policy exception requires that the discharge contravene a clearly mandated public policy.(8)

The recent trend of providing retaliatory discharge protection has been slow to expand that protection to in-house lawyers. While whistle-blower protection has been afforded to nonprofessional employees, a number of factors have limited the availability of the remedy to in-house counsel.

Courts have struggled with the issue of whether the public interest is furthered by providing whistle-blower protection to in-house attorneys. There are important concerns expressed about the effect that extension would have on the attorney-client relationship. Because ethical rules governing attorneys already address the public policy reasons justifying whistle-blower protection, moreover, there are significant questions whether recognizing this protection is simply redundant when applied to attorneys.

EFFECT OF PROTECTION ON

ATTORNEY-CLIENT RELATIONSHIP

At the heart of the attorney-client relationship is the confidentiality and privilege of the communications between attorney and client. An attorney's duty not to reveal confidential communications of a client is generally defined by the professional rules of conduct in effect in various forms in the states. In-house attorneys are bound by the same duties of confidentiality as outside counsel.(9) To preserve the integrity of the judicial system and assure effective counsel, an atmosphere in which the client is encouraged to disclose all relevant information to its attorney is essential. The attorney-client confidentiality and privilege rules encourage and promote full and...