14 November 2019 - Post by:
Recent developments in the U.S., UK and Germany have cast a spotlight on the interplay between corporate internal investigation interviews and investigations by, and cooperation with, the authorities. Interviewing company employees is often a key part of an internal investigation. Despite most employees having little choice but to agree to give internal interviews, they are not always granted the procedural safeguards associated with interviews conducted by authorities, such as a right to silence or a right to legal representation. Authorities in some jurisdictions have shown an increasing tendency towards seeking access to evidence from internal interviews (required as a mark of cooperation or by seizure) for use in a criminal investigation of the company and/or individuals. So how can an organisation carry out internal interviews in a way which is effective in terms of getting information, but at the same time does not unduly prejudice the individual’s and the company’s position in later proceedings?
Treatment of the individual can have a direct impact on corporate liability
The treatment of an individual employee can have repercussions for corporate liability, as well as the individual’s own liability. Internal interview evidence, if the authorities manage to get their hands on it, may later be used, not only against the individual, but also against the company.
In many jurisdictions a company’s liability is, to a greater or lesser extent, connected to the behaviour and knowledge of its officers or employees. In the U.S. there is vicarious liability. In Germany, a company may be fined if an individual in a management position conducts certain crimes. The UK has the identification principle meaning that evidence against the ‘directing mind and will’ of the company (normally this would be at director level) may be instrumental in attaching liability to the company too. So evidence against individuals can also be used against the corporate.
No choice to comply in Germany, U.S. and UK
Under German labour law, employees must participate and make truthful statements in interviews with their employer. Criminal procedure rules and rights are generally not applicable. So far there is no right to refuse to give evidence, although exerting undue pressure on an employee could result in criminal liability for the lawyer conducting the interview.
Since the concept of legal privilege is very limited, the government can, under certain circumstances, get hold of the results of such investigations – either through voluntary disclosure (by the company) or seizure by an authority. For example, this year the offices in Munich of a major international law firm were raided by the authorities. The law firm was raided because its client was linked to the diesel emissions investigation both in the U.S. and Germany. Many documents relating to the client’s internal investigation were seized.
Like Germany, employees in the U.S. are left with little choice when deciding whether to cooperate with an internal investigation by a private employer. The duty to cooperate can be spelled out in a company handbook or an expansive clause of a contract, making it clear that the employee is required to fully cooperate in any matter he or she is directly or indirectly involved in. Courts generally hold that an employee may be fired for cause for failure to cooperate with a company’s investigation.
It is however standard practice now in the U.S. (and indeed in other jurisdictions including the UK and, to some extent, Germany) for a corporate investigator to give what is called an “Upjohn” warning: a statement to any employee who is interviewed that counsel represents only the corporation and not the individual, and thus, the corporation maintains the right to waive privilege over the information obtained during the interview and may disclose that information to third parties, including federal or state agencies, at its sole discretion.
With recent criminal enforcement trends focusing on individual accountability, current practice is to provide an enhanced “Upjohn” warning which advises the employee not only that the corporation may waive privilege over the information, but that the employee should expect the corporation to share information learned from interviews with government agencies. This means that an employee who decides to cooperate and sits for an interview with corporate counsel may find that the information is later provided to government authorities.
In the UK employees generally have a duty to cooperate and are likely to owe a duty of candour to their employer. A failure to comply could result in disciplinary action and have regulatory implications for those in regulated roles. As with the U.S., more internal interviews are being carried out with “Upjohn” warnings.
Recent developments raise new considerations for employee interviews
Germany – Granting safeguards required for potential reduction of fine
In Germany, there are moves afoot to make granting employees certain rights during an internal investigation one of the relevant considerations for a significant reduction of a potential corporate sanction. The draft bill for a Corporate Sanctions Act in Germany envisages that a corporate sanction can be reduced if, inter alia:
- a third party commissioned with the investigation is not also acting as defence counsel for the company or any individual defendant; and
- the internal investigation must have been conducted in accordance with the principles of fair proceedings. In relation to employee interviews, this means that:
- employees are cautioned before interview;
- they are notified of, and granted, the right to independent legal representation or to consult a member of the works council; and
- they are advised in advance of, and have, a right to remain silent to any question which could expose the interviewee, or their relatives, to the risk of being prosecuted.
At the same time, the draft bill envisages that documents (including interview notes) from internal investigations are potentially subject to seizure if the internal investigation is conducted by a third party that is not acting as defence counsel (see above).
These proposed rules mark a departure from current investigations practice in many jurisdictions. A company hoping for a lighter sentence will need to consider these requirements, particularly as regards employee interviews, right at the beginning of an internal investigation which may involve the German authorities. Whether and in which format the draft bill will come into force is not clear yet. Many of its components, including the ones set out above, are currently subject to intense discussion.
U.S. – Cooperation required, but not too close
In the U.S., the extent of cooperation between a company and authority came under scrutiny recently in the U.S., where the government tried to introduce evidence from employee interviews in a criminal trial. In United States v. Connolly (2019 WL 2120523 (May 2, 2019 S.D.N.Y.)) the employees of a bank sought a court order barring the U.S. government from using at their criminal trial the results of an interview given to corporate counsel on the grounds that this would violate their right against self-incrimination. The Court took issue with the way the government conducted their investigation, and found that they failed to conduct their own investigation and directed the corporation’s internal investigation to such an extent that the corporation effectively acted as an agent of the government.
UK – Waiving privilege over employee interviews as a mark of cooperation
In the UK, there have been disagreements about whether or not the notes of employee interviews are privileged in the hands of the organisation conducting the internal investigation. As the UK Court of Appeal found last year in SFO v ENRC, the answer depends on whether or not litigation privilege can be said to apply, and this will be specific to each case. It depends on whether litigation is reasonably in contemplation at the time of the interview, and what the dominant purpose of the interview is. However, even if the record of the interview is privileged, there is mounting pressure on a company to waive privilege, and disclose full internal interview records, as a mark of cooperation. In August this year, the SFO issued new guidance on cooperation, which states that if seeking credit for cooperation by providing witness accounts, organisations should “additionally provide any recording, notes and/or transcripts of the interview and identify a witness competent to speak to the contents of each interview.” Providing just oral summaries of employee interviews is unlikely to suffice – the High Court made it clear in R (on the application of AL) v SFO that it considered the ‘oral proffer’ process to be highly artificial.
Takeaways for cross-border internal investigations
The recent developments in Germany, the U.S., and the UK raise several considerations for corporations conducting internal investigations.
- Know your jurisdiction. Different countries may grant greater rights to corporate employees who are asked to sit for interviews – the Draft Bill in Germany underlines the significance of this issue once again. While not all jurisdictions will require the same safeguards, companies and counsel should take a close look early in the investigation at the jurisdictions that are implicated by the conduct, the interplay between the potentially different legal frameworks for employee interviews, and how that may impact on a company’s liability and/or cooperation strategy.
- Cautions and legal representation. For individuals who are potentially involved in misconduct (and whose actions may affect the liability of the corporate), consider whether they should be cautioned and provided with independent legal representation in advance of any internal interview. The company may consider that this will enable the employee to give a more reliable account at interview, which might in turn help the company to more accurately assess its own legal and regulatory exposure. Lawyers should also check their own code of ethics to see what is required.
- Document internal reasoning for conducting the investigation. Companies should consider, when appropriate, documenting the reasons for commencing an internal investigation. For example, documentary evidence of a company’s expectation of an external investigation and the dominant purpose of internal employee interviews may assist with supporting a claim to privilege in the UK where appropriate. Those conducting internal investigations may wish to consider how the proposed timeline for key employee interviews may impact on when it can be said that the likelihood of litigation is clearer.
- Don’t take it too far. Cooperation with government authorities can often benefit a company due to the possibility of reduced fines and the avoidance of a criminal conviction. Cooperating while ensuring the rights of employees are protected is delicate and fiduciary duties to the company as a whole must be considered. Recent developments, in Germany and the U.S. in particular, should cause companies and their counsel to think hard early on about the structure of the investigation and employee interviews, but they should not overdo it in trying to create independence from the government’s cooperation requests. Understanding and considering the jurisdictional differences in employee rights, and taking steps to document when appropriate the internal reasoning for each step in the investigation, should create sufficient independence that can be balanced with appropriate cooperation with government authorities.