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The Conflict of Interest Inherent in a Corporation Paying for its Employee's Counsel: A Better Model for Preventing and Addressing Corporate Crime

6 Pages Posted: 29 Aug 2014 Last revised: 5 Nov 2014

J.S. Nelson

Villanova Law School; Villanova School of Business; The Wharton School, University of Pennsylvania

Date Written: August 19, 2013

Abstract

Although the U.S. Supreme Court as far back as the 1981 case of Wood v. Georgia identified the inherent conflict of interest that exists when an employer controls its employee’s counsel, until now, no uniform solution has existed to protect the employee’s rights in these situations.

Currently, a single attorney, as in Wood, may often represent both the corporation and the corporation’s employees. The employer can control the employee’s defense because agency law recognizes only that the interests of the principal — the employer — are at stake. Under agency law, the employer controls the defense because it may ultimately be liable for payments to a third party on the employee’s behalf.

But a corporation’s control over its employee’s defense creates conflict of interest problems for the attorney representing both entities. Under Rule 1.7 of the ABA’s Model Rules of Professional Conduct, "a lawyer shall not represent a client if the representation involves a concurrent conflict of interest." This Rule, however, is too often and too easily waived with a corporation and its employee in the perceived interest of economies of scale and ease of representation. And, until now, there has been no good test for exactly when the attorney’s conflict of interest between the corporation and the employee comes to a head.

Most importantly, in criminal cases, the traditional interpretation that the cause of action is solely the corporation’s intrudes onto Sixth Amendment protections for individual employee defendants. The Sixth Amendment to the U.S. Constitution provides that "[i]n all criminal prosecutions, the accused shall enjoy the right to. . . have the Assistance of Counsel for his defence." The U.S. Supreme Court has interpreted the Sixth Amendment to require effective assistance of counsel, including the "correlative right to representation that is free from conflicts of interest" for the defendant.

Suggested Citation

Nelson, J.S., The Conflict of Interest Inherent in a Corporation Paying for its Employee's Counsel: A Better Model for Preventing and Addressing Corporate Crime (August 19, 2013). Berkeley Business Law Journal, Vol. Network, No. Blog, 2013. Available at SSRN: https://ssrn.com/abstract=2488917

Josephine Sandler Nelson (Contact Author)

Villanova Law School ( email )

299 N. Spring Mill Road
Villanova, PA 19085
United States

Villanova School of Business ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States

The Wharton School, University of Pennsylvania ( email )

3730 Walnut Street
Room 668 Jon M. Huntsman Hall
Philadelphia, PA 19104-6340
United States

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