USCIS Fraud Unit Site Visits
USCIS Fraud Unit Site Visits
The Fraud Detection and National Security (FDNS) unit of U.S. Citizenship and Immigration Services (USCIS) has been conducting employer site visits for several years. The unit has recently expanded the worksite visit program by adding substantially more staff and broadening its investigative efforts. What this means is that the employers that have sponsored foreign workers for employment (e.g., H-1B petition) may have an increased chance of getting a site visit by an FDNS unit officer (or a private investigator contracted by USCIS), who, in most situations, will arrive at the worksite unannounced. Employers will want to be prepared for such surprise visits.
FDNS officers typically spend anywhere from 15 to 90 minutes at the employer’s site. The officer will likely ask to speak to a human resources manager. Infrequently, the foreign national beneficiary of the petition in question and his or her direct supervisor or manager may also be contacted.
The purpose of the site visit is to verify information in a specific immigration petition (e.g., H-1B petition), and the officer will generally have a copy of the petition. The officer usually works from a standard list of questions used for all employers. The information gathered with respect to the employer includes the nature of the employer’s business, annual revenue, the number of employees, and the employer’s overall use of specific immigration programs. With respect to the foreign worker in question, and other similarly situation employees, basic information such as job title, responsibilities, salary and credentials are being sought. The officer may also ask to view and/or photograph the employer’s premises and the foreign national’s work area. The officer may also request additional documents such as payroll records or pay stubs for the foreign national.
Practical tips in the event of an unexpected site visit:
1. Don’t panic. Note that a site visit is not indicative of any “problem” and that this may be a random visit.
2. Ask the FDNS officer to show his/her identification and business card and record it.
3. You may ask to have counsel present during the site visit, particularly if the attorney has submitted a Form G-28 Notice of Appearance in connection with a petition at issue. In general, however, FDNS officers will not reschedule a site visit just so that an attorney can be physically present. If the officer refuses to wait for an attorney or to reschedule a visit, the employer should request that the counsel be available at least by phone during the course of the site visit. If the officer is resistant, the employer should explain that having the company’s immigration counsel present or available by phone will help the employer respond fully and accurately to the officer’s questions and requests for information.
4. Cooperate with FDNS officers as much as possible. A failure to cooperate fully could jeopardize the specific immigration petition in question and compromise the company’s likelihood of success in future filings. Note that in submitting petitions for immigration benefits, employers have already agreed to reasonable inquiries from the government. With respect to clearly “off limits” requests that are not sufficiently related to the immigration petition being verified, however, the company may decline to respond.
5. If the FDNS officer asks for very specific information, such as the exact number of H-1B workers employed by the company, and if the information is not readily available without reviewing company records or obtaining the assistance of outside immigration counsel to obtain the data, the employer should request a reasonable amount of time to gather the information.
Although an unexpected site visit by a USCIS officer may be an unnerving experience, in general it should not be a cause of concern for employers who have complied and documented such compliance with the Department of Labor and USCIS requirements in filing immigration petitions.
At Will Employment, Quirky Question # 114
Quirky Question # 114:
We are a national company with operations in virtually every state. We stress to our employees that they are employed “at will” giving them the right to resign at any time for any reason, and preserving our right to terminate their employment at any time, for any reason not prohibited by law.
Recently, an employee in one of our Montana facilities who had been working with us for about three years engaged in conduct that violated our company’s policies. We fired him as a result. He now contends that we did not have a “good reason” to fire him. We told him that while we had one, we did not need a “good reason” to fire him due to our standard policy of at will employment. He claims that at will rules don’t apply in Montana. That can’t be, can it?
Roy’s Analysis:
As you described, your company terminated one of your Montana employees for violation of one of your company’s policies, believing that you had the right to terminate “at will” employees at any time for any reason not prohibited by law. Your employee, however, has asserted that at will employment rules do not apply in Montana. Your employee is correct. With limited exceptions, none of which appears to apply to your factual situation, Montana rejects the concept of at will employment.
Discharges in Montana are governed by the Montana Wrongful Discharge from Employment Act (“WDEA”). Under that statute, employee terminations are limited to terminations for “good cause.” The WDEA defines “good cause” as “reasonable job-related grounds for dismissal based on a failure to satisfactorily perform job duties, disruption of the employer’s business operation, or other legitimate business reason.” MCA, Section 39-2-903(5). In turn, Montana courts have explained that a “legitimate business reason” means a “reason that is neither false, whimsical, arbitrary or capricious, and it must have some logical relationship to the whims of the business.” In short, as the WDEA and the decisions interpreting the statute make clear, Montana employers do not have the flexibility afforded employers in most, though not all other states, to terminate an employee at any time for any legal reason. (I include the word “legal” in the last sentence because even in at will states, an employer may not fire an employee for a reason prohibited by law; for example, an employer cannot fire someone because of his or her race, sex, age, disability, etc.)
Notwithstanding the Montana statute, you should not despair. The mere fact that Montana is not an at will state does not suggest to me that you have violated the WDEA, or that your company has acted wrongfully. The WDEA makes clear that “a discharge is wrongful only if . . . the discharge was not for good cause . . . or the employer violated the express provisions of its own written policy.” MCA, Section 39-2-904(b)-(c).
As stated in your question, you believe that your employee “engaged in conduct that violated [your] company’s policies.” You did not specify which policies were violated, but it strikes me that violation of a number of different types of policies would justify discharging an employee. For example, if the employee brought a weapon to work in violation of company policy, that action would warrant discharge. Similarly, if an employee stole funds from the company, stole company product, damaged company product or equipment, or engaged in any other conduct that was criminal in nature, it would be relatively easy for a company to establish that it had “good cause” for the discharge. Other hypothetical examples that readily come to mind include violation of a company’s sexual harassment policy, violation of an insider trading policy, violation of a policy prohibiting disclosure of confidential trade secret information, and violation of a policy proscribing fighting in the workplace. There are undoubtedly numerous other types of policies, the disregard of which would warrant discharging an employee.
Moreover, Montana courts have found that an employer’s “reasonable belief” that an employee has engaged in inappropriate conduct may justify the employer’s actions. For example, in Koepplin v. Zortman Mining, Inc., 267 Mont. 53 (1994), the court concluded that an employer’s reasonable belief that an employee had engaged in threatening or harassing conduct constituted good cause for discharge under the WDEA. Finding that an employee’s threats and harassment of other workers was “disruptive of the employer’s business operation,” the employer had “the right to serve its own legitimate business interest by discharging the [plaintiff].”
In addition, Montana courts have held that actions that expose the employer to litigation or liability constitute “legitimate business reasons for discharge and for discharge and good cause under Montana’s Wrongful Discharge Act.” Montana courts have emphasized, for example, that an employer “need not wait until it has been successfully sued for harassment to determine that it has a problem employee and that termination is warranted.” See Bourdelais v. Semitool, Inc., 2002 ML 3961, at *62-72 (Mont. Dist. Ct.).
Although a well-grounded discharge decision (including one based on the fact that the employee was not meeting the employer’s performance expectations) will not run afoul of the WDEA, four general admonitions are important to consider.
First, as described above, one of the specific statutory violations described in the WDEA is that the employer has not violated the “provisions of its own written policies.” This statutory definition ups the ante with respect to the written policies utilized by employers in Montana. Regardless of the underlying content, the policies should be clear and well written. Ambiguities should be eliminated. Your company (and other Montana employers) should review carefully the policies the company has adopted and the way in which the polices are enforced to ensure that you are not creating a risk of a WDEA violation.
Second, as also noted above, Montana employers may be able to avoid any potential liability for an employee discharge if they had a “reasonable belief” that the employee has engaged in wrongful conduct. This implies that the employer has conducted an investigation appropriate under the specific facts and circumstances to evaluate meaningfully the offending conduct and its potential consequences. Precipitous decisions, made without any investigation, or decisions based upon superficial and careless investigations, will not meet that standard.
Third, Montana employers should be sensitive to the issues of inconsistent enforcement of company policies, and inconsistent treatment of individuals who violate company policies. With respect to the former, it would be relatively easy for a plaintiff to construct a compelling argument that the policy violation for which he or she was terminated was not one that warranted discharge, if other employees had violated those policies in the past without significant repercussions. Employees fired for offenses that others had engaged in without consequence could make a decent argument that this conduct could not truly have been “disruptive to the employer’s business operations” since others who had behaved in a similar (or identical) manner were still gainfully employed.
Fourth, a corollary observation to the point above is that discrimination cases often turn on the issue of differential treatment. For example, if an individual in a protected class were discharged for the same type of conduct that those outside the protected also had engaged in without repercussions, there is a significant risk of a discrimination claim. Thus, even if the court found that employer had “good cause” to discharge the employee, thereby eliminating potential exposure under the WDEA, an employer still could face potential litigation and/or exposure for violation of federal or state anti-discrimination statutes.
In sum, your ex-employee is correct that Montana is not an at will state. But, the Montana WDEA does afford employers the right to terminate employees for good reason. If the policies that you referenced in your question were important, clear, and consistently enforced, and your company had a reasonable belief that the policies were violated, your discharge decision should be affirmed. Finally, the WDEA incorporates some protections for employers that mitigate the effects associated with the rejection of at will employment. But that’s a topic for another day.
Criminal Conduct by Executive, Quirky Question # 113
Quirky Question # 113:
We recently discovered that one of our executives opened up a joint checking account in a different state in both his name and the name of the Company. The Company is a privately held company doing business in 40 states.
The employee opened up this “joint checking account” without the Company’s knowledge or consent. This employee has direct contact with many of our customers and has convinced some of them to deliver checks for select purchases directly to him. Delivering checks directly to an employee (even an executive) is a direct violation of Company policy which requires that all payments be mailed to a lock box identified on the invoice. The employee is cashing those checks in his “joint checking account.” He is then using some of the money to finance his lavish lifestyle, and the rest to create unauthorized product programs for customers to stimulate business and make his numbers look higher, and thereby increase his compensation. The employee has been doing this for several years, and the scheme appears to get bigger every year which is why he has been able to hide it for so long. He uses some of the extra money he gathers each year to pay off customers in prior years. It appears at this point that customers are out of pocket in excess of $1.5 million, and the employee has spent all of the money he misappropriated except for $50,000.
Customers are starting to raise questions. Since the employee was acting in direct violation of Company policy and it appears he was doing so only to benefit himself, the Company does not have any liability for his conduct? Right? What options should the Company consider?
[Readers: Last week, Tom Treptow, my colleague in our Anchorage office, addressed the issues associated with employer liability for wrongful conduct engaged in by nursing home employees. See Quirky Question # 112 for Tom’s insights into this topic. This week, as addressed in the analysis below, two of my colleagues in our Minneapolis office, Ed Magarian and Andrew Holly, have explored several related issues associated with wrongful conduct by a company’s employees. Specifically, Ed and Andrew, who both work in Dorsey’s Trial Department and who participate in our White Collar Crime Practice Group, examine the potential criminal and civil penalties that a company faces when one of its employees engages in criminal behavior. If you have any questions regarding the analysis below, or if your company is confronting any comparable issues, please don’t hesitate to contact either Ed or Andrew. Ed can be reached at 612.340.7873, or via email at magarian.ed@dorsey.com; Andrew can be reached at 612.340.8830, or via email at holly.andrew@dorsey.com. Additional information regarding Ed and Andrew can be found at http://www.dorsey.com/magarian_edward/ and http://www.dorsey.com/holly_andrew/, respectively. If I can be of any assistance regarding these or other issues, please contact me. Regards, Roy]
Ed and Andrew’s Analysis:
Not so fast. Both federal and (in many cases) state criminal and civil laws have draconian rules regarding an employer’s responsibility for its employees’ acts. Under federal law, for example, a corporation may be criminally responsible for its employees’ illegal acts if (1) the employee is acting within the scope of his or her authority; and (2) his or her conduct “at least in part” benefits the corporation. See, e.g., United States v. Automated Medical Laboratories, Inc., 770 F.2d 399, 407 (4th Cir. 1985); United States v. Jorgensen, 144 F.3d 550, 560 (8th Cir. 1998). The rank or position of the employee will not provide a defense to a criminal charge. See United States v. Basic Construction Co., 711 F.2d 570 (4th Cir. 1983). Nor will a company be able to defend itself based on the fact that the employee’s actions violated company policy. Automated Medical Laboratories, 770 F.2d at 407.
For example, in Automated Medical Laboratories, the Fourth Circuit concluded that there was sufficient evidence to convict Automated Medical Laboratories (AML) based upon one of its employee’s falsification of documents presented to the FDA. Although the employee’s actions were geared towards helping him advance in the company, the Court concluded that he was “clearly acting in part to benefit AML since his advancement within the corporation depended on AML’s well-being and its lack of difficulties with the FDA.” Id. at 407 (emphasis added). Thus, the conviction was upheld even though the criminal acts were meant to benefit the employee, and had only an incidental benefit to the Corporation.
Under Federal law, then, your executive’s actions may subject your company to criminal charges even though your company had no knowledge of your employee’s conduct. Assuming your executive had the “actual or apparent” authority to accept payment from customers for purchases, he could be found to have been acting with the scope of his authority. See United States v. Investment Enter. Inc., 10 F.3d 263, 266 (5th Cir. 1998) (“A corporation is criminally liable for the unlawful acts of its agents, provided that the conduct is within the scope of the agent’s authority, whether actual or apparent.”); United States v. Bi-Co Pavers, Inc., 741 F.2d 730, 737 (5th Cir. 1984) (noting that an employee has “apparent authority” to take actions on behalf of the corporation that third parties would reasonably assume the agent to have). Here, a prosecutor could argue that your company received an incidental benefit from the executive’s actions. His attempts to “stimulate business” and to “make his numbers look higher,” the prosecutor could assert, benefited the company in part by increasing revenue for the Company. Therefore, even though the executive’s prime purpose was to benefit himself, your firm faces potential criminal charges because of his behavior. Automated Medical Laboratories, Inc., 770 F.2d at 407; United States v. Gold, 743 F.2d 800, 823 (11th Cir. 1984).
Even if your company is able to avoid criminal charges, your business still faces a substantial risk of civil liability. While some states have enacted statutes limiting a corporation’s liability for the crimes of an employee, (see, e.g., Iowa Code § 703.5), most states still have harsh civil rules that make an employer responsible for any action taken by employees in the course of their employment. E.g., Youngblood v. Wall, 815 S.W.2d 512 (Tenn. App. 1991) (“The employer is generally liable for the frauds and misrepresentations of his employee made within the scope of that employment even when he has no knowledge thereof under the doctrine of respondeat superior.”). Each state will have its own rules, but generally speaking an employee acts within the “course of employment” when his or her actions further the interest of the employer – even if the employer did not approve or know of the illegal means. See, e.g., Noah v. Ziehl, 759 S.W.2d 905 (Mo. App. 1988).
Just as with the criminal law risks, your firm faces a significant risk of civil liability. Again, your executive’s fraudulent scheme may have at least incidentally “advanced the cause of” the company by adding new customers, adding revenue for the company, increasing your sales, etc. See, e.g., Roethke v. Sanger, 68 S.W.3d 353, 361 (Ky. 2001). It may be difficult for your company to avoid civil liability, particularly if your retention or supervision of the employee was in any way reckless or negligent.
Note that compensatory damages may be the least of your worries in any civil suit filed by the victims of the fraudulent scheme. Since your executive was “employed and acting in a managerial capacity,” your company could face punitive damages as well. Restatement (Second) of Torts, § 909. (Punitive damages also could be authorized for the torts of non-management employees where the corporation authorized or ratified the tortious conduct, or it recklessly hired or retained the employee. Id.)
So even if your company took reasonable precautions to prevent this type of behavior, it could still face potentially devastating criminal charges and costly civil claims due to the actions of a rogue employee. And the negative publicity flowing from the mere threat of criminal charges – even weak charges – can in many cases be much worse than the criminal sanctions themselves.
How, then, should your company, or any firm that finds itself in similar circumstances, respond once it finds out that an executive has engaged in criminal conduct that exposes your company to both criminal prosecution and civil liability? Time is typically of the essence to take appropriate steps to lessen the risk of criminal prosecution and civil liability. Some options your company should consider include, for example:
1. Conduct an investigation to determine exactly what happened, who (if anyone) knew about the executive’s actions, and who was harmed. Your company must decide whether to conduct the investigation internally or to engage outside counsel. Whether conducted internally or by outside counsel, appropriate investigative processes must be observed or this could limit your options in negotiating with the government or with a plaintiff’s lawyer. It is often stated that “knowledge is power.” Finding out what happened will allow you to make intelligent decisions going forward, and determine the scope of the overall exposure.
2. Take immediate steps to prevent further potential harm, by determining whether your executive should be suspended pending further investigation. Additional, give thought to whether steps can be taken to preserve assets or prevent additional loss.
3. Consider how your company should address potential claims by victims. If your company’s liability is clear, you may want to consider proactively contacting customers to settle claims with them. Doing so could turn your business from being a target of an investigation to a victim, and persuade the prosecutor to exercise her or his discretion not to bring criminal charges against your firm. Once that step is complete, you may wish to consider other proactive options to mitigate the harm caused by the executive’s fraud. Depending on the particular facts uncovered during the investigation, potential options include:
Giving notice of a potential claim to any insurers that might be liable for such a loss;
Filing a lawsuit and seeking an emergency injunction to freeze criminal proceeds such as the joint bank account, and otherwise seeking recovery from the executive for the loss;
Investigating the bank. Why did the bank agree to open an account in your company’s name? Did the executive have proper credentials to open the account? Did anyone at the bank benefit from or know of the scheme? Time may be of the essence as the timeline on notifying the bank may be quite short;
Contacting the victims and (if feasible and warranted), consider compensating them for their losses;
Disclosing the issue to law enforcement authorities. Your company may actually decide to disclose the criminal behavior to the authorities if your firm initially uncovered it. If your executive were convicted of criminal conduct, your company could ask for an order of restitution (for amounts reimbursed to your clients);
Investigating whether other company employees were involved, or whether there are other irregularities in the business conducted by the executive;
Examining your company’s controls to evaluate whether they need to be modified. Ascertain how the wrongdoing escaped detection for so long and consider changes that will prevent this from happening again; and
Examining the company’s compliance policy (or if your firm does not have one, draft and implement an effective compliance policy). Train employees on the compliance policy, and remind employees of all avenues to report irregular activity.
Additional factual circumstances, not presented in your question or perhaps currently unknown to you, may present other or different opportunities to respond to this crisis. The guiding principle, however, should be to develop a strategy designed to minimize the likelihood that your company will be prosecuted, be the subject of bad publicity, or named as a defendant in a civil lawsuit.
Corporate Liability for Employee Actions, Quirky Question # 112
Quirky Qusetion # 112:
We are interested in expanding and diversifying our business in Alaska and are looking at acquiring and operating assisted-living facilities. Although this is a logical spin-off from our primary business, we do not have any actual experience in this area. We are attempting to sort through numerous issues related to the operation of these facilities.
We are concerned about local and national news stories detailing patient abuse by employees in such facilities. Our initial thought is that we should not be responsible for the intentional conduct of our employees in such situations. However, the tenor of the news reports has us re-thinking that view. Can you provide any guidance? We are interested in expanding and diversifying our business in Alaska and are looking at acquiring and operating assisted living facilities. Although this is a logical spin-off from our primary business, we do not have any actual experience in this area. We are attempting to sort through numerous issues related to the operation of these facilities. We are concerned about local and national news stories detailing patient abuse by employees in such facilities. Our initial thought is that we should not be responsible for the intentional conduct of our employees in such situations. However, the tenor of teh news reports has us re-thinking that view. Can you provide any guidance?
[Readers: Set forth below is the analysis of my colleague, John Treptow, who works in our Anchorage AK office. If you have any questions regarding the issues discussed below, please do not hesitate to contact John at treptow.john@dorsey.com or via telephone at 907.257.7802. Additional information regarding John and his practice is available at: http://www.dorsey.com/treptow_john/. Regards, Roy]
Your concern about employer liability for patient abuse by employees in assisted-living facilities is certainly justified. To fully appreciate the extent of that problem, a brief discussion of the sources of employer liability in Alaska would be helpful.
Employers frequently view their liability for the acts of their employees simply in terms of whether the employee was acting within or outside the “scope of his employment” when he committed his acts. The issue is more complex than that and the inside/outside scope analysis is not necessarily determinative of an employer’s liability.
There are three sources of liability for the operators of assisted-living facilities for the acts of its employees in Alaska. First, Alaska, by statute and regulation, regulates and protects the rights of residents in assisted-living facilities and prohibits the owners and the staff at those facilities from engaging in certain conduct. Violation of these statutes and regulations give rise to “direct” employer liability for the violations. Second, in certain circumstances, the intentional conduct of employees, their criminal acts and performing acts that the employer actually forbids them to do may fall within the scope of their employment thus making the employer “vicariously” liable. Third, an employer may be vicariously liable for an employee’s acts committed outside the scope of the employee’s job.
Alaska, like virtually every other state, regulates assisted-living facilities. The statutes and regulations are straight forward and easily understood. Residents of assisted living facilities have statutory rights ranging from the right to “live in a safe and sanitary environment” to “receiving and sending unopened correspondence.” See AS 47.33.300(a)(1)(4) In addition, there are statutory prohibitions on certain types of conduct that specifically apply to both the owners of the facility and to the staff. These prohibitions range from depriving a resident “of the rights, benefits or privileges” guaranteed by law to compelling “a resident to perform services for the home.” See AS 47.33.330(a)(1)(6) Violation of these statutory rights and prohibitions can result in administrative sanctions, criminal penalties and civil liability. See AS 47.33.550 and 570.
Second, as a general rule, an employer is vicariously liable for the wrongful acts of its employee when the employee is acting “within the course and scope of their employment.” However, there are notable exceptions to this rule. In certain circumstances the following acts may be within the scope of employment: (1) acts forbidden by the employer, (2) acts which are consciously criminal or intentionally wrongful, and (3) the failure to act. See Restatement (Second) of Agency §230, 231 and 232
Over time, the Alaska Supreme Court has drifted away from the scope of employment analysis in assessing employer liability. Nearly twenty years ago the Alaska Supreme Court stated “‘scope of employment’ as a test for the application of respondeat superior would be insufficient if it failed to encompass the duty of every enterprise of the social community which gives its life and contributes to its prosperity . . . the basis of respondeat superior has been correctly stated as the “‘the desire to include in the costs of operation inevitable losses to third persons incident to carrying on the enterprise, and thus distribute the burden among those benefited by the enterprise.’” Doe v. Samaritan Counseling Center, 791 P.2d 344, 349 (Alaska 1990).
In Veco, Inc. v. Rosebrock, 970 P.2d 906 (Alaska 1999) the Court wrestled with an employer’s liability for the sexual harassment committed by a supervisor. This was an issue of first impression in Alaska. The Court recognized that the supervisors were acting beyond the scope of their employment and were acting for personal reasons and not, even in part, to serve their employer. 970 P.2d at 910. Despite that recognition, the Court proceeded to adopt Restatement (Second) of Agency §219(d)(2) which provides that an employer may be liable for acts outside the scope of employment if the employee was “aided in accomplishing the tort by the existence of the agency relationship.” Vicarious liability was imposed on Veco, Inc. based upon the principle that the employee was vested with “power” by the employer. The Court reasoned that the supervisor’s sexual harassment was the direct result of the supervisor’s position with the employer. 970 P.2d at 911.
In Ayuluk v. Red Oaks Assisted Living, Inc. et al., 207 P.3d 1183 (Alaska 2009) the Court found that “a caregiver in an assisted living home who has supervisory power or authority over vulnerable residents is, for the purposes of the aided in agency theory, in a position that is analogous to that of a supervisor of employees. A caregiver, as a provider of food, comfort, hygiene, and medication for residents, has the power to hold or delay any of these basic needs. Thus, like the supervisor of employees, a caregiver is in a position to punish in direct or subtle ways a resident who resists sexual advances. While the sexual advances themselves may neither be authorized nor reasonably appear to be authorized by the employer, the caregiver’s power that enables him to further his improper conduct is an inherent part of the employment relationship.” 201 P.3d at 1200 (emphasis added).
Although, not discussed by the court, a strong argument certainly exists that vicarious liability can be imposed on employers for public policy reasons including: (1) deterring abusive conduct and, (2) assuring compensation for the victim.
I am hopeful that this insight provides you sufficient information to evaluate the potential liability in operating assisted living facilities in Alaska. Remember, there are other jurisdictions in the United States that view these issues differently. See, e.g., Meyers v. Trendwest Resorts, Inc., 56 Cal. Rpt. 3d 501, 525 (Cal. App. 2007).
Searching a Former In-House Counsel’s Computer, Quirky Question # 111
Quirky Question # 111:
We fired one of our in-house counsel. He now has sued us for a variety of claims, all of which we think are bogus. At the time his employment ended, we required him to turn in his company-owned computer. We are reviewing it and finding that it contains a treasure trove of information useful to our defense of his case. First, it contains evidence that corroborates our justification for the discharge decision – he just was not competent. Second, it contains his ruminations about his litigation strategy, as well as memos he prepared for his own lawyer regarding his potential claims. Given that he composed all of these memos on his company-issued computer and left the memos on the computer when he departed, we assume that we can access and use this material? Any problems with our assumption?
Roy’s Analysis:
Your question regarding your entitlement to review the computer records of your former in-house counsel, including records reflecting his communications with his own attorney, is complicated and implicates several different issues. As you described, you discharged your former in-house counsel and he now has sued your company for various claims you believe to be “bogus.” You also described the fact that your review of your former in-house counsel’s computer revealed three different types of information you consider to be helpful to the defense of his lawsuit: a) information that you believe corroborates your justification for terminating him (i.e., information demonstrating that he was not competent; b) information reflecting your former employee’s reflections about his litigation strategy; and c) information contained in memoranda your former in-house counsel prepared for his own attorney. In my view, these three categories of information call for different treatment.
Two prefatory comments also are relevant. First, the fact that your former employee was your in-house counsel is important, but not to the issues critical to your analysis. (Courts have mixed views regarding litigation by former in-house counsel, especially when their litigation involves any confidential communications relating to their responsibilities as in-house counsel. I have addressed these issues in a prior Blog posting; see “Attorney-Client Privilege” in the View By Topic bar on the upper right-hand side of this page to review QQ # 50.) Second, one key to the analysis of your situation is the language of your company’s electronic communications policies (assuming your company has such policies in place). You do not reference the policies in your question and my comments are limited that fact. With that caveat in mind, here are a few thoughts.
You identified three different categories of information. As referenced above, your treatment of the different types of information does not need to be (and should not be) uniform. With respect to the information relating to your former employee’s performance as one of your in-house counsel, your company should not be reticent to gather, organize and use this data. If the information demonstrates that your former in-house attorney was performing poorly, you will be able to use that data in the litigation he initiated.
With respect to the second category of information you have identified on the company computer used by your former employee – his reflections about his claims and/or litigation strategy – I would urge greater caution. Here, I would be sensitive to two issues. First, I would want to know what your company’s policies stated with regard to personal use of the company-issued computers. Did your policy provide that anything and everything created or stored on the company’s computers was subject to review and/or search by the company? Or, was your company’s policy less intrusive? A third option, of course, is that your company’s policies did not address this issue at all. With respect to either of the latter two contexts, I would encourage your company not to review these materials, at least not without prior judicial approval. The mere fact that your employee stored some of his personal ideas, or as you characterized them, his “ruminations,” about his claims on a company-issued computer does not necessarily mean that your firm has an unfettered right to review and use this data. My concern is that, absent a very clear policy stating that your company reserved the right to review all data of any kind placed on a company computer, a court might find your review of this information too intrusive. Second, a corollary to the last point is that the information relating to an assessment of the claims and the former in-house counsel’s analysis of his potential lawsuit, may reflect communications he had with his own attorney. Here, too, a court may well find your review of this data to be inappropriate.
The last observation spills over into the third category of information you identified in your question – information reflecting your former employee’s communications with his attorney. I addressed this issue in one of the early questions covered in this Blog in the context of email communications with counsel (see “Attorney-Client Privilege” by selecting that topic and review QQ # 12). As I previously described, there were relatively few judicial decisions analyzing how a former employee’s communications with his or her attorney via use of a company’s email system should be handled. The case previously discussed, a 2007 decision out of New York, found for the employer, concluding that the company had a right to review even privileged communications if sent through the company’s email system. Notwithstanding that decision, I suggested a more cautious and conservative approach.
Another issue raised by the fact pattern you described is a practical one. How can you sort through all of this material, some of which you have a legitimate right to review and some of which you do not, without reading the impermissible materials? In reality, you can’t. Even if you quickly skimmed or skipped over this material, there would be an appearance of impropriety that a court may be reluctant to let pass. Therefore, as described further below, you need to ensure that the review is not conducted by anyone who will be involved in defending the claims brought by your former in-house counsel. This specifically includes anyone employed by your outside counsel’s firm and anyone in your own Law Department.
A recent decision from the Superior Court of New Jersey, Stengart v. Loving Care Agency, Inc., No. A-3506-08T1 (June 26, 2009), validated my previous conservative recommendations and provides some guidance to the question you posed. In Stengart, the court considered the issue of whether an employee’s emails with her attorney, sent from the employee’s personal, password-protected, Web-based email account, but via her employer-issued laptop computer, were the employer’s property. The District Court found that they were, holding that the employer’s electronic communications policy, set forth in its employee handbook, provided the employer the right to create a forensic image of the computer hard-drive and review the information on the hard-drive, including information that otherwise would have been encompassed by the attorney-client privilege. The appellate court reversed.
The court of appeals spent some time reviewing the factual record to assess whether the communications policy relied on by Loving Care Agency had ever been finalized, adopted, and published to its workforce. The appellate court also considered provisions of the policy (assuming that it had been adopted) that seemed inconsistent with the broad employer claim that it was entitled to review all information on the hard-drive, particularly the portions of the policy authorizing employees to utilize the computers for limited “personal use.” The court also found ambiguities regarding whether the communications policy extended to password-protected, web-based email accounts, that an employee accessed via the company-owned laptop. The appeals court noted that even if it affirmed the lower court’s determination on these two issues (with which it clearly disagreed), it nevertheless “reject[ed] the company’s ownership of the computer as the sole determinative fact in determining whether an employee’s personal emails may become the company’s property.”
As the New Jersey court noted, “Although plaintiff’s emails to her attorney related to her anticipated lawsuit with the company, the company had no greater interest in those communications than it would if it had engaged in the highly impermissible conduct of electronically eavesdropping on a conversation between plaintiff and her attorney while she was on a lunch break.” The court further found that there was “no legitimate business interest” served by the company’s claims that all private communications on a company computer were company property.
Finally, the Stengart appellate court was deeply troubled by the company’s intrusion into the attorney-client privilege. (In Stengart, the company had imaged the hard-drive and outside counsel had reviewed all of the privileged communications without apprising the ex-employee of its actions. These facts only were revealed in discovery.) Noting that the attorney-client privilege was “venerable” and had been “recognized in the English common law prior to our Nation’s birth,” the court stressed that the privilege was basic to the relationship of trust and confidence between client and attorney. Given the importance of the attorney-client privilege, the court observed, “In weighing the attorney-client privilege, which attaches to the emails exchanged by plaintiff and her attorney, against the company’s claimed interest in ownership of or access to those communications based on its electronic communications policy, we conclude that the latter must give way.” The court therefore found that the company policy “is of insufficient weight when compared to the important societal considerations that undergird the attorney-client privilege.” Given the actions of the employer’s outside counsel in reviewing the employee’s privileged communications, and the obligations imposed on counsel when they receive or obtain access to privileged communications, the court remanded the issue of whether the employer’s outside counsel should be disqualified from further participation in the litigation and/or should be subjected to some other sanction.
The principles of the Stengart case apply with equal force to your situation. In my estimation, it would be imprudent to review the attorney-client privileged communications between your former in-house counsel and his lawyer. If these communications already have been reviewed, those who engaged in the review likely will be precluded from participation in the defense of the litigation. Whether any other actions need to be taken with respect to those individuals can’t be discerned from the facts set forth in the question.
To the extent that the materials relating to your former employee’s reflections on the litigation and/or his privileged communications have not been reviewed as yet, your position will be stronger. You then could explore at least two alternative options. The hard drive could be reviewed by a forensic computer expert, simply for the purpose of sorting through the data and categorizing the information. Alternatively, the information could be reviewed by an independent outside law firm, with the understanding that this firm will neither be involved in the defense of the litigation nor communicate with you regarding the content of the privileged data. The role of this firm would be to organize the data for the purposes of providing your company the information that it is entitled to receive (material falling into your first category of data) and to isolate from your company the information you should not review. Finally, I recommend that you immediately notify your ex-employee and his lawyer that you have this data in your possession and that you will not be reviewing it pending a judicial determination. At that point, either your ex-employee could move for the return of the information or you could seek guidance from the court regarding how this information should be handled.
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