When Laidlaw International Inc. found out that a grand jury was investigating the company for allegedly submitting fraudulent invoices to a local government, it arranged for counsel for the three employees that were the primary targets of the investigation. In addition, the bus and transit company engaged a fourth attorney to represent former employees and existing staff members who were not currently the subject of the grand jury investigation.
Each of the retainer agreements noted the following:
In addition, the company notified employees that they were free to engage an attorney other than the counsel Laidlaw had retained. However, the resulting legal bills would be the responsibility of the employee. Faced with the prospect of large legal bills, all three employees accepted the company's offer. However, Laidlaw also stated in the agreements that it had the right to stop paying for the attorneys at any time.
The New Jersey division of criminal justice objected to the arrangement arguing that it created a conflict of interest. The state moved to disqualify the lawyers. Since Laidlaw held the "purse strings," the state believed that attorneys would be required to ensure that company's interests were protected. As described in court documents, "such an arrangement risks dividing the attorney's loyalty between the client and the client's employer."
Under Rules of Professional Conduct, attorneys can be hired by companies for their employees under certain conditions. The trial court held that the company-paid attorneys did not violate these rules and could represent Laidlaw employees in the grand jury investigation after imposing some restrictions. It also noted the company hired "competent, knowledgeable, respected attorneys."
The Supreme Court of New Jersey affirmed the lower court (In the Matter of the State Grand Jury Investigation, A-80-08, November 2009). However it stipulated six rules that companies must abide by if they pay lawyers for employees:
1. The employee-client must give informed consent.
In addition to ruling that no conflict existed in having Laidlaw pay for its employee's legal representation, the court also provided the following guidance for companies in similar situations:
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