House Counsel

House Counsel

A lawyer on an organization’s payroll has the same client as a lawyer the organization retains. Rule 1.13(a) says so in its first sentence: a lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.¹ Cincinnati Insurance Co. v. Wills reads the rule’s text the same way. Rule 1.13 by its terms applies to attorneys “employed or retained” by a corporation or other organization, so employee-attorneys carry the same obligations, supervision included, that attorneys carry in other forms of practice.² The rules even define a “law firm” to include lawyers employed in the legal department of a corporation or other organization, and no one disputes that properly admitted employee-attorneys practice law when they represent their employer.³

From the entity’s side, the choice between hiring a lawyer as an employee and retaining one from outside changes nothing about the relationship. When the matter is the entity’s own legal affairs or transactions, the entity engages an attorney to provide legal services either way, and whether that attorney draws a salary or sends a bill is unimportant.⁴

The employment arrangement is permitted because the danger behind the business-form restrictions is absent. A lawyer may not practice in a business form in which laypersons hold such positions as partner, owner, or director, and the ban exists to prevent a layperson from interfering with the attorney-client relationship. A direct employee of the client raises no such concern. The nonlawyer employer has substantial authority over its lawyer-employee, but the client itself exercises that authority, and no layperson has interposed herself between lawyer and client.⁵

Rule 1.13(a) adds one refinement. An organization acts only through people, so the executives who supervise the in-house lawyer speak for the client only as its duly authorized constituents.⁶ A supervisor’s instruction carries the client’s authority when it settles a matter the organization has entrusted to that supervisor’s position, and it carries none when the supervisor is pursuing a private interest. The lawyer’s salary comes from the entity, and the supervisor is only one of the channels through which the entity gives instructions.

House counsel appropriately takes certain directions from the employer-client, yet the lawyer remains responsible for meeting the profession’s ethical expectations, and Rule 1.13 gives the lawyer responsibilities to the entity that call for independent professional judgment.⁷ The two halves of that sentence cover different ground. Direction covers the client’s decisions about its own business, which the client may make even when its lawyer would choose differently. Independent judgment covers the candor of the lawyer’s advice and the legal and ethical duties the lawyer brings to every engagement, and it gives the lawyer no veto over the client’s lawful choices.

The two scenes mark where the employer’s authority ends. In the first, the lawyer disagrees with a decision that the client’s duly authorized decision makers were entitled to make, and she defers. In the second, the instruction comes from a supervisor who is harming the client, and no authority the client conferred covers it. Reporting upward is loyalty to the client and not disloyalty to the employer, because the officers and board above the vice president are the organization acting through its duly authorized constituents.⁸ The lawyer also owes the entity a professional duty to protect it against its constituents’ wrongful acts, and that duty exists even aside from Rule 1.13.⁹

The pressure on house counsel is practical. She has one client, and the officers whose conduct she may have to question often influence her pay, promotion, and continued employment. Rule 1.13 allows no discount for that dependence, because employee-attorneys are subject to the same obligations as attorneys in other forms of practice.¹⁰ A lawyer who fails to protect the entity risks discipline and civil liability, so the argument that speaking up would cost the job answers one risk by accepting another.¹¹

Rule 1.13(e) also blunts the threat of discharge. Suppose the lawyer reasonably believes she was discharged because of corrective actions she took in response to unlawful conduct by a constituent that threatens substantial injury to the organization, or suppose she chooses to withdraw. The rule still requires her to take reasonable steps to ensure that the organization’s highest authority is informed of the discharge or withdrawal. The rule aims to make sure the governing body learns the state of affairs, or at least is put on notice that something may be awry. Because the lawyer may tell the constituents concerned that this duty survives termination, they are less likely to force her out as a way to silence her objections.¹²

A stem about house counsel usually tests whether the salary changes the analysis. It does not change whom the lawyer represents, who speaks for the client, or what the lawyer owes the entity when a constituent acts wrongfully, and it gives the lawyer no power to override the client’s lawful business choices.