In-house attorneys face unique situations when it comes to client relationships and job responsibilities. But when it comes to ethical obligations, the Model Rules don’t recognize any difference between lawyers who work in-house and others.  Model Rule 1.0(c) defines “law firm” to include lawyers employed “in the legal department of” an organization, and it has been noted that notwithstanding the “square-peg-round-hole” problem, all the ethics rules apply to corporate counsel.  A recent Washington state supreme court opinion, however, has now called this rubric into question on a hot-button issue: wrongful discharge claims of in-house counsel.

The Dilemma

Imagine a scenario where a client seeks legal advice after being fired for reporting the employer’s illegal conduct — a classic whistle-blower scenario.  Many would advise an action raising claims of breach of contract, wrongful discharge and retaliation.  But what if your client were in-house counsel for that employer?  Model Rule 1.16(a)(3), adopted in some version in every jurisdiction, gives clients the right to discharge their lawyer at any time and for any reason.  See cmt. [4].  What recourse does in-house counsel have?

Washington Supreme Court’s solution

The Washington supreme court addressed this issue in Karstetter v. King County Corrections Guild. Jared Karstetter was an in-house attorney for the Corrections Officers Guild, under a five-year contract that provided for just-cause termination with notice and an opportunity to be heard. In 2016, Karstetter was contacted by a whistle-blower regarding parking reimbursements to Guild members.  The Guild directed Karstetter to cooperate with the investigation while the Guild sought advice from outside counsel.

The opinion is short on facts, but indicates that after investigating, the outside law firm recommended that Karstetter be fired.  He was terminated without notice or an opportunity to be heard, and he sued the Guild, alleging that he had assisted the investigation of a whistle-blower complaint as directed, and that he was fired for doing so.  He asserted claims for breach of contract, wrongful discharge and other common law claims.

The issue before the Washington supreme court was whether the state’s rules of professional conduct precluded the breach of contract and wrongful discharge claims.  In a divided decision, the majority reversed the intermediate court of appeals, concluding that the “rules of professional conduct do not foreclose an in-house attorney employee from bringing breach of contract and wrongful discharge claims against a former employer-client.”

The court reasoned that in the traditional attorney-client relationship, ethics rules would forbid an attorney from bringing such claims, but that “such an interpretation [of the ethics rules] is neither required nor reasonable in the nontraditional circumstances of in-house attorney employees.”

The court explained that in-house lawyers face unique employment situations and have complex relationships with their clients.  The relationship between in-house attorneys and their clients “cannot be characterized solely as an attorney-client relationship; it must be viewed as an employer-employee relationship as well.”

Noting that “our [ethics] rules have not evolved with the profession,” the court concluded that in-house attorneys can bring breach of contract and wrongful discharge claims against a former employer provided that the lawsuit is brought “without violence to the integrity of the attorney-client relationship.”

Ethical considerations and the aftermath of Karstetter

Model Rule 1.16 simply states that a lawyer must withdraw from representation if the lawyer is discharged.  While the rule may seem clear, the plain language leaves more questions than it answers. The rule does not address what requirements the client must meet to discharge an attorney, nor does it recognize circumstances surrounding non-traditional attorneys.

Courts have also ruled contrary to Karstetter, including courts in California and Illinois.  But see Wadler v. Bio-Rad Labs., Inc. (affirming jury verdict on in-house lawyer’s whistle-blower retaliation claim, based on state public-policy grounds).

Are the rules of professional conduct equitable as applied to in-house counsel?  When the rules were adopted, the vast majority of lawyers worked in a traditional legal environment.  Since then, there have been an increasing number of attorneys in non-traditional roles.  In-house lawyers have vastly different expectations, are economically dependent on the financial success of their client, and have an expanded set of work obligations.

It is possible that Karstetter and cases like it may lead to more challenges to the square-peg-round-hole application of the ethics rules to in-house lawyers, and the inquiry may not stop at Rule 1.16.  This inquiry may go deeper.  How does Karstetter affect Model Rule 1.6 (Confidentiality of Information), or Model Rule 1.9 (Duties to Former Clients)?  It is likely that the Washington Supreme Court will not be the only court faced with these issues.