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The trend in corporate investigations equates cooperation with waivers of otherwise traditionally-protected privileges. But what is the price of cooperation for a corporation’s employees? One obvious cost is the demise of many protections afforded to employees. Any time the specter of a regulatory or criminal investigation becomes reality, one of the first issues that in-house counsel must face is the significance of relatively recent guidance from the U.S. Department of Justice, sometimes referred to as the “Thompson Memorandum,” and the Seaboard 21(a) Report generated by the U.S. Securities and Exchange Commission. Included in these reports is encouragement for corporations to cooperate with the government. That cooperation usually translates into the corporations waiving their attorney-client and work-product privileges, taking remedial steps quickly, and putting up no impediments to the investigation. In return, the government reduces penalties or criminal charges. The government considers the corporation’s cooperation or lack thereof when it evaluates penalties and even when it decides whether to press forward with the investigation. Indeed, cooperation may be one of the single most important factors in the analysis of whether a corporation will receive a favorable outcome in its dispute with the government. To effectively waive these privileges and earn appropriate credit for cooperation, corporations are frequently finding themselves in the position of discouraging their employees from invoking Fifth Amendment rights and encouraging full and speedy cooperation with the governmental agency. As a result, an interesting dilemma develops in situations where a corporation seeks to reduce potential civil, regulatory or criminal charges by cooperating with a governmental agency but at the same time has to address the traditional rights and privileges of its own employees. Of course, a corporation can also take action with respect to its employees that may undermine any benefit of cooperation. For example some actions that the government might perceive as undermining cooperation may include: 1. advancing attorneys’ fees to employees and agents; 2. retaining employees without imposing sanctions for bad behavior; 3. asserting a joint-defense privilege with employees and agents; and 4. advising an employee to decline governmental interviews. One message from the recent trend is that for a company to align itself with its own employees and agents may lead the government to label such activity as “uncooperative.” So, to what extent does encouraging an employee to waive his rights and privileges encroach on the employee’s freedom from self-incrimination and effective assistance of counsel? This issue is increasingly important in Texas due to the fact that most employees are employed at will. Therefore, a corporation wishing to cooperate with the government may feel compelled to terminate or demote an employee who chooses not to cooperate with the internal investigation. As a result, the corporation is left wide open to litigation regarding: 1. whether the corporation is a state actor, in which case courts may apply the exclusionary rule — which the U.S. Supreme Court applied to federal criminal proceedings in 1914′s Weeks v. United States and extended to criminal proceedings undertaken by the states in 1961′s Mapp v. Ohio — to throw out any testimony or evidence obtained in violation of the employee’s Fifth Amendment right; 2. whether the corporation has subjected the employee to duress in compelling the employee to cooperate and waive privileges and rights or risk termination; and 3. whether an employer can punish an employee for refusing to cooperate with an internal investigation. For instance, under the current regime, must an in-house counsel advise executives at her corporation to terminate an employee for refusing to answer questions during an internal investigation and asserting her Fifth Amendment rights? What if it is apparent that the employee has been untruthful in the investigation? From the government’s perspective, in both scenarios, the correct answer is the same: The corporation should terminate the employee. DON’T BE SHORTSIGHTED Corporations wishing to minimize infringement of an employee’s rights and reduce the chance of further litigation should consider doing the following: • Fully disclose actions and consequences to employees:Corporate or in-house counsel should explain to employees that the corporation is conducting an internal investigation in an effort to cooperate with the government. Lawyers should advise employees that the corporation and its lawyers may disclose any information shared to the government. • Clearly identify the client: It is ethically important for counsel to clearly explain to employees that counsel represents only the corporation. If employees ask whether they should retain their own lawyers, counsel should advise employees that the decision is completely up to each employee. In-house counsel should not discourage employees from retaining lawyers but should inform them that they should do so immediately and pay for the lawyers themselves. Add that the corporation will not tolerate any delay in scheduling interviews and proceeding. • Stick to the facts: Counsel conducting the internal investigation should be selective of the information he wishes to document in writing and should refrain from including mental impressions and strategies in notes of witness interviews. • Avoid snap decisions to appease: The corporation should take remedial steps to avoid future violations or rectify past improper activity as soon as possible. However, the corporation should not take such steps before fully understanding the facts and ascertaining the degree of remedial action necessary through the investigation. Quickly terminating an employee may appease the government but may lead to further liability and/or expense. A corporation should not infringe on employee rights to appease third parties — including governmental agencies. While it may seem to be the most effective way to obtain favor at the time, it may later cost the corporation in terms of future liability in the employment law arena. THE BOTTOM LINE? An employer should not ignore employee rights to gain short-term favor in a governmental investigation. David R. Clouston is a partner in and Christopher R. Richie is an associate with Patton Boggs in Dallas. They regularly advise public and private companies in employment matters. They also advise individual officers, public companies and brokerage houses involved in investigations by the Securities and Exchange Commission and other regulatory authorities.

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