For organizations under investigation by government regulators or prosecutors, it is a matter of necessity to prepare a litigation strategy for both civil and criminal proceedings, often at both the state and federal level, and often against both private and public actors. Frequently, federal regulatory bodies, such as the SEC or EPA, team up with the Justice Department and use civil and criminal proceedings in a pincer movement to squeeze pleas and settlements from targeted organizations and their employees. For any organization facing such a threat, it is imperative that counsel grasp the Fifth Amendment’s effect on the proceedings.

First, the basics: The Fifth Amendment provides citizens with protection from self-incrimination. Organizations do not have the right to invoke the Fifth Amendment privilege, but their employees do as long as they are not acting in a custodial capacity for the organization. The privilege applies in both criminal and civil proceedings. However, an important difference exists. While no adverse inference may be drawn against a criminal defendant who invokes the privilege and chooses to remain silent, the same is not true in the civil context. Some courts will allow an adverse inference against a corporation when its employee asserts the Fifth Amendment. Some courts have even allowed an adverse inference when a corporation’s former employee asserts the Fifth Amendment. The effect of this legal framework is that organizations facing parallel proceedings due to their employees’ alleged malfeasance frequently face the following dilemma: In light of actual or threatened criminal proceedings, the organization’s employees invoke the Fifth Amendment privilege in the civil proceedings, which sometimes creates an adverse inference against the organization in the civil context and makes it appear as though the organization is being uncooperative in the criminal proceedings.

What can be done in this all-too-common scenario? Three main paths exist: (1) The parties go through the normal civil litigation process, including discovery, without individuals invoking the Fifth Amendment privilege; (2) the parties go through the civil litigation process, but one or more employees invoke their Fifth Amendment rights; or (3) the civil case – or civil discovery – is stayed until the criminal proceedings are complete. It is not advisable to attempt to buy time by invoking the Fifth Amendment privilege during the civil discovery phase only to waive it prior to trial. This sort of abuse of the privilege is roundly condemned by the courts. Defendants have also sought protective orders to prevent the testimony of a civil witness from being used in a criminal proceeding. But some courts have rejected that maneuver and have invalidated such protective orders on the grounds that the order amounted to a grant of use immunity, which could only be granted by the executive branch. Of course, actually obtaining immunity for the employee would avoid the possibility of an adverse inference against the corporation.

From the perspective of a corporate defendant, one key decision is whether to ask for a stay of the civil proceedings. An important advantage of not asking for a stay is that the Federal Rules of Civil Procedure provide for more expansive discovery than the Rules of Criminal Procedure. Thus, a savvy criminal defendant might be able to discern the government’s strategy in the course of civil discovery, especially when the government has conducted a joint civil and criminal investigation. In addition, counsel may be able to lock in witness testimony in the course of taking depositions. This approach, however, has significant risks. It could lead to a potentially disastrous result in which documents or testimony provided in the civil context lay the foundation for subsequent criminal prosecution. In addition, if employees take the Fifth during civil discovery, it could lead to an adverse inference against the company.

Because of these and other risks, sometimes the best option is to seek a stay of the civil proceedings. Courts have discretion over whether to grant a stay and typically balance the following factors, established in Golden Quality Ice Cream Co. v. Deerfield Specialty Papers, Inc.: “(1) the interest of the plaintiffs in proceeding expeditiously with [the civil] litigation . . . and the potential prejudice to plaintiffs of a delay; (2) the burden . . . on defendants; (3) the convenience of the court . . . ; (4) the interests of persons not parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation.” Actions involving purely economic concerns are not often considered to affect the public interest and are good candidates for stays. Cases that directly impact human concerns are less likely to be stayed. Stays should be requested formally and with the government’s consent if possible.

Situations in which corporate defendants cooperate with the government present additional considerations. The interests of the organization and any targeted employees could be at odds. As an ethical matter, these employees should not be represented by the organization’s counsel. This tends to make it more likely that the employees will be advised by their own counsel to invoke the Fifth Amendment privilege. Fortunately, courts have recognized that it is inappropriate to allow an adverse inference against an organization whose interests are not aligned with the employee or former employee’s interests. Typically, courts use some version of the Second Circuit’s four factor test, set forth in LiButti v. United States, to decide whether an adverse inference may be permitted against the corporation. The factors are: “(1) the nature of the relevant relationships; (2) the degree of control of the party over the non-party witness; (3) the compatibility of the interests of the party and non-party witness in the outcome of the litigation; and (4) the role of the non-party witness in the litigation.”

Attempting to pin the blame on rogue employees presents still different risks. A spurned employee might decide to cooperate with the government and convince it that the corporation or a more senior employee is the bigger fish or a more guilty party. In seeking to avoid this outcome, a corporation might decide to retain its employee and provide him or her with independent counsel, who in turn might advise the employee to invoke the Fifth Amendment privilege. Under this scenario, the organization is in a precarious position: It becomes difficult to curry favor with the government when a key employee chooses to remain silent; and retaining the employee raises the likelihood that an adverse inference will be imposed on the organization in the civil context. In such a case, pursuing a stay might be the best option.

In sum, there is no easy path to take when navigating the waters of parallel criminal and civil proceedings. Organizations must attempt to ferret out the nature of the malfeasance, gauge the responsibility of employees involved, assess the strength of the government’s case and the necessity of cooperating and weigh the effect of drawn-out proceedings on the health of the organization. In balancing all of these considerations, it is critical that organizations understand how the Fifth Amendment privilege against self-incrimination creates risks and rewards that must be included in the organization’s overall strategic calculus.

Read Adam Feinberg’s previous column.