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Long-Term Employment Agreements with In-House Counsel: Employment Security Or Ethical Quagmire?

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Long-Term Employment Agreements with In-House Counsel: Employment Security Or Ethical Quagmire? University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln College of Law, Faculty Publications Law, College of 12-2003 Long-Term Employment Agreements With In-House Counsel: Employment Security or Ethical Quagmire? Richard E. Moberly University of Nebraska, [email protected] John Hutchins McKenna Long & Aldridge LLP Follow this and additional works at: https://digitalcommons.unl.edu/lawfacpub Part of the Legal Studies Commons Moberly, Richard E. and Hutchins, John, "Long-Term Employment Agreements With In-House Counsel: Employment Security or Ethical Quagmire?" (2003). College of Law, Faculty Publications. 34. https://digitalcommons.unl.edu/lawfacpub/34 This Article is brought to you for free and open access by the Law, College of at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in College of Law, Faculty Publications by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. Published in GEORGIA BAR JOURNAL 9:3 (December 2003), pp. 20-29. Copyright 2003 State Bar of Georgia. Employment Agreements Long-Term Employment Agreements With By Richard Moberly and John Hutchins In-House Counsel: Employment Security or Ethical Quagmire? he relationship between a company and its in-house corporate counsel involves a fragile mixture of the corporate counsel’s fiduciary obligations T as the company’s attorney and the company’s legal and contractual respon- sibilities as the attorney’s employer. Although these roles and expectations often blend smoothly, the relationship can become problematic when the corporate counsel’s posi- tion 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 quan- tum 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 struc- tured 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 rela- tionship, 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 con- tractual rights. This article addresses two issues that may arise as a result of this tension. 20 Georgia Bar Journal First, it is unresolved in Georgia action against a former employer is however, that standard can be dif- whether long-term employment entirely dependent upon whether ficult to apply, particularly in the contracts are enforceable by in- this type of contract is enforceable. context of an attorney taking the house counsel through a breach of Second, if a general counsel is offensive against a client based contract action. In Georgia, permitted to bring a breach of con- upon a breach of contract claim. “express contracts between attor- tract action against an employer- Unfortunately, neither of these ney and client as to compensation client, the limits on the attorney’s issues is resolved easily under cur- are generally recognized.”3 At the ability to use the client’s own confi- rent Georgia law, which should be same time, it is also the state’s pub- dential information against the unsettling to Georgia’s in-house lic policy that “a client has the client in that litigation are some- counsel and their clients alike. absolute right to discharge the what murky. This issue has been attorney and terminate the relation hotly debated in other jurisdictions THE ENFORCE- at any time, even without cause.”4 in the context of wrongful dis- ABILITY OF A At the intersection of these two charge claims, but the issues are competing forces are long-term relevant even in a breach of con- LONG-TERM employment contracts for in-house tract action. Georgia’s Rule of EMPLOYMENT counsel. For example, a long-term Professional Conduct 1.6 provides contract that provides for a signifi- some guidance, in that it only per- CONTRACT FOR cant severance benefit should the mits an attorney to reveal a client’s GEORGIA’S IN- employment be terminated prema- confidential information if the turely may arguably limit the abili- attorney reasonably believes it is HOUSE COUNSEL ty of a corporation to terminate the necessary “to establish a claim or Two seminal Georgia cases dom- attorney’s employment. Whether a defense on behalf of the lawyer in a inate the issue of the enforceability discharged in-house attorney may controversy between the lawyer of a long-term employment con- succeed in a breach of contract and the client.”5 In application, tract between a company and its in- company was bound by the general ed when an attorney represents a house counsel: Henson v. American counsel’s contractual rights.14 client.”20 6 Family Corp. and AFLAC, Inc. v. AFLAC, Inc. v. Williams: Yet, despite this apparent rejec- Williams.7 These cases, however, tion of Henson’s reasoning, the reach differing conclusions regard- The Client Has the AFLAC Court distinguished ing the balance between a compa- Absolute Right to Fire Henson, without expressly overrul- ny’s beneficiary rights as a client Its Attorney ing it, by basing its decision on the and an attorney’s contractual rights invalidity of the AFLAC contract’s The public policy apparently as an employee. damages provision, a type of provi- hidden from the Henson Court was sion which the Court noted was not Henson v. American identified a decade later by the involved in Henson.21 Moreover, Georgia Supreme Court in AFLAC, Family Corp.: the Court specifically stated that it Inc. v. Williams.15 In AFLAC, the Contracts Should Be was not addressing the employ- Court held that a long-term retainer Enforced ment relationship between employ- contract for an outside counsel was ers and in-house counsel, as that In 1984, the Georgia Court of unenforceable because it contained issue was not before the Court.22 Appeals determined that a dis- a penalty clause if the client prema- Therefore, the AFLAC Court’s judi- charged general counsel could turely terminated the contract.16 cial restraint left unresolved what bring a breach of contract action Under the contract in AFLAC, the effect, if any, its emphasis on a against his former employer under company paid an outside counsel a client’s right to terminate its attor- a long-term retainer contract.8 In monthly retainer under a seven- ney without consequence has on Henson, a company and its general year contract; however, if the com- Henson’s contrary holding. In short, counsel executed a ten-year pany terminated the contract early, AFLAC may cause Georgia’s in- employment contract, “subject to even for good cause, it agreed to house counsel to wonder whether removal by action of the board [of pay “as damages an amount equal their long-term employment con- directors] at any time it shall be to 50 percent of the sums due under tracts are enforceable. deemed necessary.”9 Six years the remaining terms, plus renewal later, the board removed the gener- of this agreement.”17 The Conflict Between a al counsel.10 As part of litigation The Court relied upon important Client’s Beneficiary resulting from the termination, the public policies underlying the Rights and an general counsel filed a breach of attorney-client relationship to Attorney’s Contractual contract claim to obtain the fee for determine that such a contract was the remainder of his contract.11 unenforceable.18 Specifically, the Rights In permitting the action to go for- Court held that this contract was At its core, the conflict between ward, the Court of Appeals rejected void as against public policy, Henson and AFLAC is a conflict the company’s argument that such because “[r]equiring a client to pay between which value to uphold: a a long-term retainer contract is damages for terminating its attor- client’s unfettered right to fire its against public policy. Relying on a ney’s employment contract eviscer- attorney or an employee’s right to 1922 Georgia Supreme Court case, ates the client’s absolute right to rely on his or her contract. The pol- the Court of Appeals stated that terminate. A client should not be icy arguments supporting each express contracts between an attor- deterred from exercising his or her value are compelling. ney and client are generally recog- legal right because of economic The Georgia Supreme Court’s 19 nized, even if the contemplated coercion.” The Court consciously articulation of the theoretical 12 services are not rendered.
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