Source: https://globalinvestigationsreview.com/benchmarking/the-practitioner%E2%80%99s-guide-to-global-investigations-third-edition/1179096/employee-rights-the-us-perspective
Timestamp: 2019-04-25 16:15:11+00:00

Document:
Although employees generally cannot refuse to participate in investigations without risking their employment, they do possess various rights implicated by corporate investigations. The sources of those rights include the employer and federal and state law. With respect to the employer, many companies have policies and procedures for internal investigations. For instance, employee handbooks, company by-laws, written guidelines and employment agreements often contain provisions regarding employee data and document collection, workplace searches, communication monitoring, privacy and confidentiality. These documents may also provide guidance on an employee’s right to indemnification for legal fees expended during an investigation or related proceedings. In addition, many companies maintain written policies that protect employees from retaliation for participating in an investigation. These documents, and unwritten, established company procedures, should be considered to understand the protection afforded to employees in an investigation.
Federal and state law also govern the rights of employees involved in investigations. These rights, discussed below, can be divided into three general categories: (1) the right to be free from retaliation; (2) the right to representation; and (3) the right to privacy.
Although employees generally have no right to refuse to participate in a corporate investigation, they may be protected from retaliation. A number of federal employment statutes prohibit retaliation against employees who participate in corporate investigations. State and local laws provide similar protection.
Moreover, employees who possess information regarding corporate misconduct have some leverage in that they may become whistleblowers. Whistleblowers are protected from retaliation under federal and state whistleblower laws.
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) provides for both civil and criminal penalties for employers who retaliate against whistleblowers. Section 806 of the law governs civil penalties. It prohibits publicly traded companies from retaliating against employees who assist or provide information to law enforcement, Congress, or ‘a person with supervisory authority over the employee’ regarding activity the employee reasonably believes is a violation of: (1) federal law regarding mail, wire, securities, or bank fraud; (2) an SEC rule or regulation; or (3) any provision of federal law relating to fraud against shareholders.7 To bring a Section 806 claim, an employee must first file a complaint with the Department of Labor within 90 days of the employer’s retaliatory action, and must make a prima facie showing that the employee’s protected conduct was a contributing factor in the action taken against him or her. The Occupational Safety and Health Administration, which has been delegated authority to investigate complaints of retaliation, will notify the employer of the complaint, and will decline to conduct an investigation if the employer demonstrates by clear and convincing evidence that it would have taken the same action in the absence of the employee’s whistleblowing conduct.
Employees have no automatic right to counsel during an internal investigation,25 unless contractually provided under the terms of their employment.26 Nonetheless, employees may choose to retain counsel, particularly if they face liability.
Concerns over individual criminal liability have increased since September 2015, when then-Deputy Attorney General Sally Yates issued a memorandum titled ‘Individual Accountability for Corporate Wrongdoing.’ The ‘Yates Memo’ stresses the importance of combating corporate misconduct by holding individuals accountable. It lists six steps that should be part of all investigations and prosecutions of corporate misconduct, the first of which is that a corporation’s eligibility for co-operation credit depends on it providing the Department of Justice (DOJ) with all relevant facts about the individuals involved in the alleged misconduct. The Yates Memo also states that all investigations must focus on individuals from the inception of the investigation, and that barring extraordinary circumstances, which must be personally approved in writing by specified DOJ personnel, DOJ attorneys will not agree to any settlement or corporate resolution that dismisses charges or provides immunity for individual officers or employees.
During an interview with no employee counsel, the employee may ask whether he or she should obtain individual counsel. This can place the interviewer in an uncomfortable position. An affirmative answer could have undesirable consequences, including delaying the investigation, chilling the employee’s candour, and risking that individual counsel may approach law enforcement before the employer concludes the internal investigation. A negative answer creates complications and potential claims against the employer and investigating counsel if the employee self-incriminates or compromises future legal positions during the interview. Generally, the prudent course is to politely decline to answer the question.
Employers often wish to disclose to the government information obtained from employees during investigatory interviews to obtain co-operation credit or general goodwill. However, in the absence of instructions to the contrary, interviewed employees may believe that their company’s attorneys represent them, and may attempt to assert attorney–client privilege over their communications with company counsel. To avoid this problem, counsel should provide an Upjohn warning at the start of any interview.
An effective Upjohn29 warning explains that: (1) company counsel is collecting facts for the purpose of providing legal advice to the company; (2) company counsel represents the company and not the employee; (3) the interview is covered by the attorney–client privilege, which belongs to and is controlled by the company, not the employee; and (4) the company may decide, in its sole discretion, whether to waive the privilege and disclose information from the interview to third parties, including the government.30 Once the warning has been given and the employee has been afforded an opportunity to ask questions, the delivery of the Upjohn warning should be documented by a note-taker as contemporaneous evidence that it was provided.
The importance of Upjohn warnings has been amplified by the guidelines set forth in the Yates Memo. Under the Yates Memo, a company’s eligibility for co-operation credit requires that it discloses all relevant facts about individuals involved in corporate misconduct. In practice, this usually entails revealing what a culpable employee says during an investigatory interview. However, a company can only do this if it controls the attorney–client privilege, which an effective Upjohn warning accomplishes.
Whether the employer agrees to arrange for counsel can depend on a number of factors, such as the employee’s contractual and indemnification rights, the corporate by-laws, and the potential conflict of interest between the employee and the corporation. Although separate representation of an employee can increase expenses and lengthen the investigation, it can also provide certain advantages to the company. It can reduce any suggestion of improper influence by the company over the employee, which can bolster the company’s credibility with the government when reporting the results of the investigation and increase the company’s co-operation credit. In some circumstances (particularly when individual counsel has a good working relationship with company counsel), it can facilitate communication with the employee. Company and individual counsel should come from different law firms. Further, arranging for individual representation can deter the government from communicating directly with the employee.
When confronted with multiple employees who warrant separate counsel, employers may seek to reduce costs by arranging for ‘pool counsel’ to represent the entire group. However, this pool arrangement must be reassessed if a conflict of interest arises within the group.
Employees who use their own personal electronic devices for work should be aware that work-related data stored on those devices belongs to the employer. Therefore, employees are advised to refrain from using their personal devices for work, and instead maintain separate work devices. If an employer seeks to obtain or review work-related data from an employee’s personal device, the employer must be careful to exclude any personal data.
An employer seeking to investigate wrongdoing through electronic surveillance must be mindful of federal and state law.
Notably, with respect to email, because employees generally do not possess an expectation of privacy in their work accounts, employers may access personal emails exchanged over these accounts.
The Secretary of Labor may bring court action to restrain employers who violate the statute and may assess monetary penalties. In addition, an employer who violates the law may be liable to the employee or prospective employee for appropriate legal and equitable relief, which may include employment, reinstatement, promotion, and payment of lost wages and benefits.
Among the significant issues that may arise from in-house counsel, and often external counsel, representing the company and not the individual is whether the employee has a right to be indemnified. The right to be indemnified may extend to legal fees, advancement of legal fees and for any potential judgment debt or settlement. As discussed above, an employee has a right to have his or her own counsel, even if the company pushes for joint representation by company counsel, but the complicated question of whether the company must indemnify the employee for costs around separate representation may arise. Determining a company’s indemnification obligations requires close review of any agreements and understandings that might give rise to indemnification or advancement of fees. It is critical that an employee communicate closely with company counsel to come to a mutual understanding of the company’s obligations.
Employees should ask their counsel to assertively engage in communications with the employer and company counsel to determine whether the company will agree to indemnify the individual employee and to advance fees. This conversation should also specifically discuss the exact scope of any indemnification. If the company agrees to, or must, indemnify from any agreement or source of this right, employee’s counsel should draft and execute a written agreement binding the company. Although the company may seek to impose unfavourable terms, it is generally advisable to reduce the indemnification obligation to writing.
Employees and their counsel should carefully review potential sources of right to indemnification. These sources may include company by-laws, local law in the state of incorporation, company policies and insurance policies of the employer.
Corporate by-laws often delineate the company’s obligation to indemnify an employee’s costs arising out of representation for internal investigations or any matters related to his or her official duties. Employee counsel must carefully review corporate by-laws because, even if indemnification obligations are provided, they are often listed with limitations or releases from obligation. For example, many companies include release provisions releasing the company from its obligations or entitling it to repayment of any indemnified cost if the costs subsequently transpire not to be indemnifiable. If these provisions exist, it is likely that the company will require the employee to sign an undertaking letter, in which the employee agrees to repay any amounts advanced if it is later determined that the employee was not entitled to indemnification. Similarly, there is a difference between the duty of an employer to indemnify an employee of costs incurred and any duty to advance defence costs. Some corporate by-laws regarding indemnification may require advancement of attorneys’ fees. However, such by-laws should be reviewed carefully, because absent such language, the employee has no right to advancement of attorneys’ fees. In practice, more often than not employees will be entitled to have their attorneys’ fees advanced.
Many corporate by-laws also include specific language of which employee categories have a right to indemnification. For example, it is common for company by-laws to indicate that the company must indemnify an officer or director who is successful on the merits or otherwise in the defence of a qualifying claim, but remain silent on the issue of whether other private employees have a right to indemnification. These other employees, or their attorney, should ask for indemnification whenever a claim or investigation arises.
Employees and their counsel should also review state and local laws in the state of incorporation. Review of state and local laws is often overlooked because employees assume indemnification provisions are exclusively contained in corporate by-laws and any employment or subsequent agreements with the company. However, a number of states impose indemnification obligations on companies in local and state laws for private employees, especially for directors and officers.
California has a strong public policy that favors the indemnification (and defence) of employees by their employers for claims and liabilities resulting from the employees’ acts within the course and scope of their employment. Labor Code section 2082 codifies this policy and entitles employees to indemnification from their employer.
Employees should also look at company policies and employment contracts or subsequent agreements as sources of indemnification rights. In addition to indemnification required by corporate law, individual employees may have contractual indemnification rights in their employment agreements. Even if the company by-laws do not indicate a right to indemnification, a company must honour any obligations in individual employment agreements. For example, as good business practice and to promote co-operation with an investigation, some companies may decide to expand the scope of indemnity to include employees who might not be covered by the by-laws or state and local laws that are likely to be witnesses or subjects. As a strategic point, employers may expand the scope of indemnity to ensure co-operation of employees, which may show the company in a more favourable light to any regulator or investigative body.
Some employers may choose to purchase directors’ and officers’ (D&O) insurance to supplement or provide an alternative to indemnification. Some indemnification agreements require companies to purchase insurance. If the employer has D&O insurance, the nature of the allegation and the terms of the specific policy may trigger payment of defence costs.
Despite numerous possible sources giving rise to the right to indemnification, companies are not always eager to indemnify employees for representation or costs incurred during an investigation or defence. However, employees should advocate for the company to indemnify them for incurred costs or advancement of fees. The benefits to both the employer and employee should be emphasised, as indemnification can protect both parties’ interests. When entering an employment or separation agreement, an employee should request and push for a specifically defined indemnification provision.
The employer or company may become more credible and promote efficiency and effectiveness of an internal investigation by ensuring that employees are adequately represented. If company counsel recognises a conflict of interest and the need for the employee to have separate representation, the corporation benefits if the employee is co-operative. Therefore, the company may assess the employee’s involvement and whether failure to pay individual counsel fees or to advance attorneys’ fees will make the employee’s co-operation less likely. While in some instances employees may be required to co-operate by subpoena, it is in the best interest of the corporation to work jointly with the employee to prepare its own defence and receive information in advance through a joint defence agreement.
Employees should be aware of the circumstances in which a company’s obligations to indemnify may cease. As mentioned above in Section 14.5, a company’s obligations to indemnify an employee may be contingent on, and circumvented by, any undertaking agreement between the parties. An undertaking agreement requires an employee to repay any advanced or covered costs in the event the costs were untimately not deemed indemnifiable. A company is generally released from its indemnification obligations for any violation of an undertaking agreement (substantive or procedural) and fraud or bad faith.
In some instances, an employee’s failure to co-operate with a company’s investigation could absolve the company’s obligation to cover individual costs. This can create a difficult decision for an individual employee regarding whether to co-operate where failure to do so will affect indemnification. Even if an employee does not want to co-operate with company counsel – internal or external – and submit to an interview or otherwise co-operate, he or she may still be called to produce testimony or information pursuant to a subpoena. Failure to initially co-operate may preclude an employee from securing indemnification for assumed costs. However, it is still often in the best interest of an employer to offer to indemnify employees who may initially seem unco-operative because in the event they are called to testify, it is still safer for the company if they are represented.
Privilege considerations become central during investigations. Because of the various permutations of attorney-client relationships with both internal and external counsel, it is important for employees to remember that they only enjoy protections over communications with individual counsel. If an employer requests an interview with an employee, employee counsel and company counsel, the communications and testimony at the interview are not privileged.
An employee and his or her counsel should note whether the company counsel issued a proper Upjohn warning and whether it was documented. If an inadequate Upjohn warning was given, an employee’s individual counsel may attempt to prevent or limit disclosure of any statements made by the employee in an interview where individual counsel was not present.
In 2010, the Ninth Circuit in US v. Graf articulated a standard to determine whether a company employee holds a joint privilege with the employer company over communications with corporate counsel.50 By adopting the Third Circuit’s Bevill test to determine the privilege issue, the Ninth Circuit falls in line with the First, Second, Third and Tenth circuits on this issue. The Bevill standard holds that ‘any privilege that exists as to a corporate officer’s role and functions within a corporation belongs to the corporation, not the officer.’51 The Court in Bevill extended the privilege to officers and employees in an individual, personal capacity only when the employee satisfies the following five-factor test: First, they must show that they approached counsel for the purpose of seeking legal advice. Second, they must show that when they approached counsel, they made it clear that they were seeking legal advice in their individual capacity rather than in their representative capacities. Third, they must demonstrate that the counsel saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise. Fourth, they must prove that their conversations with counsel were confidential. And fifth, they must show that the substance of their conversations with counsel did not concern matters within the company or the general affairs of the company.52 Notwithstanding the foregoing, an employee would be ill-advised to confide or speak candidly with company counsel given the subject nature of the standard. Whenever possible, an employee should make efforts to secure personal individual counsel.
Finally, as a practical matter, employees should be aware that communications with other employees or colleagues regarding the investigation are not privileged regardless of whether the colleague is also involved in the investigation or represented by the same counsel. In addition, employees should attempt to communicate with individual counsel on personal and non-company devices to ensure that the privilege is protected.
1 Milton L Williams is a partner, Avni P Patel is a senior associate and Jacob Gardener is an associate at Walden Macht & Haran LLP.
2 See Testimony of Henry W. Asbill, National Association of Criminal Defense Lawyers, to the US Sentencing Commission, at 4 (15 November 2005) (‘Increasingly, companies do not hesitate to fire individual employees who refuse to “cooperate”.’); Sarah Helene Duggin, Internal Corporate Investigations: Legal Ethics, Professionalism, and the Employee Interview, 2003 Colum. Bus. L. Rev. 859, 907 (2003) (‘[I]n most states, [an employee’s] refusal to cooperate with an internal investigation“constitutes a breach of the employee’s duty of loyalty to the corporation and is good grounds” [for dismissal.]’).
3 826 F.3d 69 (2d Cir. 2016).
4 826 F.3d at 76 (internal quotation marks omitted). In exceptional circumstances, where the government exerts overwhelming influence over the internal investigation and the employer’s decision-making, the employer’s actions may be found to constitute state action. See, e.g., United States v. Stein, 541 F.3d 130, 136 (2d Cir. 2008) (holding that ‘KPMG’s adoption and enforcement of a policy under which it conditioned, capped and ultimately ceased advancing legal fees to defendants followed as a direct consequence of the government’s overwhelming influence, and that KPMG’s conduct therefore amounted to state action’).
5 These statutes include Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Family and Medical Leave Act, the National Labor Relations Act, and the Occupational Safety and Health Act.
6 The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the Consumer Financial Protection Act of 2010.
7 See 18 U.S.C. § 1514A(a).
8 See 18 U.S.C. § 1513(e).
9 See 15 U.S.C. § 77a.
10 See 7 U.S.C. § 26.
11 See 12 U.S.C. § 5567.
12 See 15 U.S.C. § 78u-6(h)(1)(B)(i).
13 See 15 U.S.C. § 78u-6(h)(1)(B)(iii)(I)-(II).
14 See 15 U.S.C. § 78u-6(h)(1)(C).
15 See 15 U.S.C. §§ 78u-6(b)(1)(A)-(B). Notably, in June 2018, the SEC announced proposed changes to the whistleblower programme. The SEC explained that ‘[t]he proposed rules would, among other things, provide the Commission with additional tools in making whistleblower awards to ensure that meritorious whistleblowers are appropriately rewarded for their efforts, increase efficiencies in the whistleblower claims review process, and clarify the requirements for anti-retaliation protection under the whistleblower statute.’ Press Release, SEC, ‘SEC Proposes Whistleblower Rule Amendments’ (28 June 2018), https://www.sec.gov/news/press-release/2018-120.
16 See Press Release, SEC, ‘SEC Awards Whistleblower More Than $2.1 Million’ (12 April 2018), https://www.sec.gov/news/press-release/2018-64.
17 See 18 U.S.C. § 1514A(c).
18 See 15 U.S.C. § 78u–6(a)(6) (emphasis added).
19 17 C.F.R. § 240.21F-2.
20 See Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 630 (5th Cir. 2013).
21 See Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 156 (2d Cir. 2015); Somers v. Digital Realty Tr. Inc., 850 F.3d 1045 (9th Cir.).
22 See Digital Realty Tr., Inc. v. Somers, 138 S. Ct. 767 (2018).
23 Somers, 138 S. Ct. at 778.
24 Id. at 777 (quoting S. Rep. No. 111–176, at 38) (original emphasis, internal quotation marks omitted).
25 The Sixth Amendment right to counsel is triggered by a custodial interrogation by law enforcement authorities. See Miranda v. Arizona, 384 U.S. 436, 479 (1966). An internal investigation by a private company does not generally implicate this right.
26 Union employees, however, may insist that a union representative attend any investigatory interview that could lead to the employee’s discipline. See N.L.R.B. v. J. Weingarten, Inc., 420 U.S. 251, 256 (1975). The union representative may not interfere with the interview. New Jersey Bell Tel. Co. & Local 827, Int’l Bhd. of Elec. Workers, Afl-Cio, 308 NLRB 277, 279-80 (1992). Employers have no obligation to inform employees of their right to union representation or to ask if they would like a union representative present during the interview.
28 If counsel concludes, after reviewing the available information and conferring with the client, that the evidence establishes the client’s guilt, counsel may wish to advise the client to decline an interview to avoid making potentially incriminating statements. Although that may prompt the client’s termination, counsel may reasonably determine that termination is inevitable regardless of the client’s participation in the interview.
29 Upjohn Co. v. United States 449 U.S. 383 (1981).
30 Although company counsel commonly request that the employee keep the interview confidential, it is improper to suggest that the employee must refrain from disclosing the underlying facts to the government. Such a suggestion may run afoul of SEC Rule 21F-17, which forbids any person from taking ‘any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications’.
31 See, e.g., Cal. Const. art. I, § 1 (protecting right to privacy).
32 See, e.g., Cal. Lab. Code § 980 (2012) (prohibiting an employer from requiring or requesting an employee to: (1) ‘[d]isclose a username or password for the purpose of accessing personal social media’, (2) ‘[a]ccess personal social media in the presence of the employer’, or (3) ‘[d]ivulge any personal social media, except’ in response to a request ‘to divulge personal social media reasonably believed to be relevant to an investigation of allegations of employee misconduct or employee violation of applicable laws and regulations, provided that the social media is used solely for purposes of that investigation or a related proceeding’; prohibiting an employer from taking adverse action against an employee or applicant for not complying with a prohibited request or demand for access to social media).
33 See, e.g., claims for invasion of privacy, intentional infliction of emotional distress and negligent infliction of emotional distress.
34 See 18 U.S.C. § 2510 et seq.
35 See 18 U.S.C. § 2510(5)(a).
36 See Cal. Penal Code § 632 (a)-(d); Conn. Gen. Stat. Ann. § 52-570d; Fla. Stat. Ann. §§ 934.01 to .03; 720 Ill. Comp. Stat. ANN. § 5/14-1, -2; Md. Code Ann. Cts. & Jud. Proc. § 10-402; Mass. Gen. Laws Ch. 272, § 99; Mont. Code Ann. § 45-8-213; Nev. Rev. Stat. § 200.620; N.H. Rev Stat. Ann. §§ 570-A:2; 18 Pa. Cons. Stat. §§ 5702, 5704; Wash. Rev. Code §§ 9.73.030 to 9.73.230.
37 See 29 U.S.C. §§ 2001-2009.
38 See 29 U.S.C. § 2006(d).
39 See 29 U.S.C. § 2007.
40 See, e.g., N.Y. Lab. Law §§ 733, 735 (prohibiting employer from using ‘psychological stress evaluator examination’ to determine truth or falsity); Cal. Lab. Code § 432.2 (prohibiting employers from ‘demand[ing] or requir[ing] any applicant for employment or prospective employment or any employee to submit to or take a polygraph, lie detector or similar test or examination as a condition of employment or continued employment’).
41 See 8 Del. C. Section 145(c).
42 Hermelin v. K-V Pharm. Co., 54 A.3d 1093, 1094 (Del. Ch. 2012).
43 See 8 Del. C.§ 145(e).
44 See ORS 60.394 and RCW 23B.08.520.
45 See Cal. Labor Code Section 2802(a).
46 44 Cal. 4th 937, 952 (2008).
47 See generally Matthew L. Jacobs, Julie S. Greenber, Basic Principles of D&O Coverage and Recent Developments, 741 PLI/Lit 29, *35 (2006).
48 Memorandum from Deputy Attorney General Mark Filip to Heads of Department Components and United States Attorneys, Principles of Federal Prosecution of Business Organizations 8 August 2008), available at https://www.justice.gov/sites/default/files/dag/legacy/2008/11/03/dag-memo-08282008.pdf.
49 USAM 9-28-730 Obstructing the Investigation.
50 610 F.3d 1148 (9th Cir. 2010).
51 In re Bevill, Bresler & Schulman Asset Mgmt. Corp. 805 F.2d 120 (3d Cir. 1986).
52 US v. Graf, at 8 (citing Bevill, 805 F.2d 120 (3d Cir. 1986)).

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