Legal focus: Minimising commercial and legal risks – employment contacts for in-house lawyers

There are a number of risk management strategies drawn from global case law and experiences applied by businesses regarding the framework and management of in-house legal teams (see StrategicRISK, December 2013, p42-43).

One strategy concerns the terms of an in-house lawyer’s employment contract. Such a contract is one of the fundamental building blocks that should underpin a business’s risk strategy and it therefore requires appropriate and measured consideration when putting together any in-house legal operation.

As with many risk management strategies, global case law tends to dictate the terms that should, as a matter of best practice, be incorporated into an in-house lawyer’s employment contract. Courts worldwide are delivering a message to businesses that they expect to be provided with evidence that the employment relationship between a lawyer, as employee, and their employer is not undermining the lawyer/client relationship.

In-house lawyers are distinct, given that, unlike other employees, they hold professional obligations and duties to their client, the administration of justice and the court. As such, standard terms of employment are not sufficient, and the unique aspects of a lawyer’s place within the wider and legal communities need to reflect this.

Businesses in the US have a long-established practice of incorporating specific terms into an in-house lawyer’s contract of employment. This is not surprising, given that US in-house lawyers have historically played – and continue to play – central roles within organisations.

The remainder of the global business and in-house legal communities have not necessarily reached the same point, but it is essential for any organisations employing in-house lawyers to have a comprehensive understanding of the issues.

Acting for a client

Lawyers are engaged to “act for” a person(s) or organisation(s). This is fundamental to the professional lawyer/client relationship, and the employment relationship does not alter that basic principle. Although, on the surface, this may seem insignificant, a term that states an in-house lawyer is employed to “act for” a particular organisation or organisations (as in the case of corporate groups) demonstrates, at least on the face of it, that the business appears to understand the unique relationship it holds with its in-house lawyer(s).

Independence

Whether it is the courts throughout the UK, Europe (most notably, the 2013 decisions in Belgium and the Netherlands), Australia, Hong Kong, the US or Canada, the same point is reiterated throughout and is abundantly clear: the independence and ability to demonstrate such independence of any in-house legal team are non-negotiable.

As mentioned in December 2013’s StrategicRISK article, the independence of an in-house legal team is paramount and several risk minimisation strategies can be adopted relating to the operational framework to ensure that independence is not undermined.

This issue has the potential to become significant to any business that does not appropriately address and deal with the independence of its in-house legal team.

Ensuring the structural integrity of the in-house legal operation also needs to be supported by a further risk strategy, and part of that requires appropriate documentation to be in place concerning an in-house lawyer’s employment relationship with their employer. As such, fundamental independence clauses in the employment contract should be in place:

- Employer recognising independence: showing that an in-house lawyer understands the independence concept is only part of the picture. The employment contract needs to stipulate that any in-house lawyer is employed to provide independent legal advice to the business. But it should go further. Arguably, it is also an obligation to be placed on the employer. Accordingly, the contract should identify that the business recognises its internal legal advice must be independent and that the business will not prevent or hinder its internal legal operation from maintaining that independence.

- Ethical duties: by and large, the business community understands that onerous ethical duties are placed on lawyers. Those duties do not merely vanish or diminish because a lawyer has taken their career in-house. The employment contract therefore needs to give some credence to this. The practical effect of that credence is that a clause(s) is required that clearly states that the contracting parties agree that an in-house lawyer’s duties are:

• not only to the employer as ‘client’ but also to the court and to the administration of justice; and
• in the event that those respective duties come into conflict, the duty to the court and the administration of justice will take precedence.

In conjunction with that, in circumstances where an organisation employs a senior lawyer – usually a general counsel, but not always – it would be appropriate for the employment contract to include a clause that provides that, as the organisation’s most senior in-house lawyer, they may go above their reporting lines and bring matters to the attention of the board if such action is warranted in their professional opinion.

- Admission to the bar, practising certificates and professional bodies: it may, on the face of it, seem an obvious inclusion, but clauses requiring an in-house lawyer to be admitted to they local bar, to hold a practising certificate and to be a member of their professional body do not appear as commonly as they should. Again, such clauses are fundamental to any sensible employment contract and demonstrate that employer and employee have reached a common understanding as to the importance of the independent legal advice.

Restrictive covenants

Likewise, incorporating a restrictive covenant into an in-house lawyer’s employment contract is not a clause commonly seen. Its importance becomes clear in a scenario where an in-house lawyer moves organisations and receives instructions from their new employer to sue their former employer. An in-house lawyer can acquire very intimate knowledge of, or from, the client – an organisation’s general attitude to the litigation process, for example, or how individual employees react under cross examination. An organisation would be quick to react should it find itself in such an unpalatable position.

A body of case law – mainly from the UK and Hong Kong – is starting to develop around this topic. To date, courts have taken a liberal view on the issue and have not imposed onerous restrictions on in-house lawyers who may find themselves in such a position. In that regard, if an employer wants to restrict an in-house lawyer’s post-employment and prevent them from acting against it, the courts have required that an in-house lawyer’s employment contract contain an enforceable restrictive covenant along those lines. As such, an organisation needs to ensure that it has an appropriate risk strategy in place as part of an in-house lawyer’s employment contract to deal with such an issue.

Minimising risk

The internal legal operation within a business plays a vital role in providing positive long- and short-term benefits to that organisation.  However, without an appropriate framework around the employment relationship between a business (employer) and its in-house legal advisers (employees), an organisation leaves itself potentially vulnerable on several fronts. Incorporating appropriate clauses into a lawyer’s employment contract is relatively straightforward – but an effective way of minimising business, commercial and legal risk. Equally, as a risk minimisation strategy, this should not carry any significant cost burden.

Sascha Hindmarch is of counsel in the London office of US/UK litigation boutique Hausfeld & Co