In-House Counsel Fired for Compliance with Ethical Rules

Ever hear the joke about the in-house attorney who was fired for complying with the Rules of Professional Conduct? It’s no joke. Model Rule 1.13(b) provides that if in-house counsel knows that an employee is violating a law that may be imputed to the employer, the lawyer must proceed in the best interest of the employer. But, complying with that rule may result in backlash for the attorney. Take for example the following case, in which the Utah Supreme Court considered whether the rule creates a public policy exception to at-will employment to prevent companies from terminating in-house counsel for reporting illegal activity to management.

In Pang v. Int’l Document Servs., in-house counsel determined his company’s lending policies violated several states’ usury laws.   His repeated warnings to the company’s owners of their illegal practices fell on deaf ears.  Therefore, he took home company documents to prepare a spreadsheet to present to the company detailing the usury violations. Two weeks later he was fired for taking home company documents in violation of company policy. He then filed a complaint against his employer alleging that he was terminated for refusing to ignore the illegal conduct.  As a result he claimed that the company had effectively asked him to violate Utah Rules of Professional Conduct in order to keep his job.

In Utah, all employment relationships are presumed to be at-will, unless it meets a certain exception.  Plaintiff raised the public policy exception in his argument that his termination violated a clear and substantial public policy.  The district court dismissed the complaint finding that Rule 1.13(b) does not constitute a clear and substantial public policy that prevents the termination of an at-will employee. The decision was affirmed on appeal.

The decision is interesting in that it may have a negative impact on the ability of in-house counsel to comply with their ethical duties without risking adverse employment action. This may have a chilling effect on in-house counsel’s willingness to step forward when faced with ethical dilemmas in the representation of her client.

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