Internal Investigations and the Risk of Defamation Lawsuits

February 2015

In every internal investigation, there is an inherent tension between the interests of the attorneys who represent the company and the attorneys who represent individual employees who are interviewed as part of the internal investigation. The attorneys who represent the company try to identify all possible wrongdoing in order to make a full and fair report to internal counsel and if necessary, to prosecutors and regulators. The attorneys for the company often are working under pressure, being pushed by prosecutors to identify misconduct by employees. Good company counsel does their best to make certain that their reports are complete and authoritative. Attorneys who represent individual employees have somewhat different objectives. They want to make sure that their clients are truthful in their interviews, which is required by law. But they are also concerned that their clients could be blamed for things that they did not do, perhaps based on another employee’s word or the misreading of an innocent e-mail.

When company counsel concludes that an employee has engaged in an illegal act and reports this allegation to the government, the employee stands a higher likelihood of being prosecuted. Even if the government has no interest in prosecuting the employee, the employee is almost certain to be the subject of a publicized job action (such as a suspension or termination), making it hard for that employee to find another job. While indicted employees have a forum to clear their names if they have been unjustly accused, employees who are reported to the government and terminated from their jobs without being prosecuted do not have any opportunity to clear fully their names in the arena of public opinion.

Whether implicated employees may file defamation actions against the company to clear their names depends upon the type of privilege applicable to statements made by companies during internal investigations. Different jurisdictions around the country have answered this question differently. A case pending before the Texas Supreme Court asks the court to determine the applicable privilege and may influence the way attorneys for both sides approach these types of investigations.

To continue reading Harry Sandick and Susan Millenky's article from the February 2015 edition of Bloomberg BNA’s Corporate Law & Accountability Report, please click here.