Employment Law Daily In-house attorney may sue former employer for wrongful discharge
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Tuesday, July 23, 2019

In-house attorney may sue former employer for wrongful discharge

By Wayne D. Garris Jr., J.D.

Unlike traditional private practice attorneys, in-house attorneys’ employer-employee relationship with clients warrants different treatment under Rules of Professional Conduct.

An in-house attorney for a labor organization overcame a motion to dismiss and may pursue his wrongful termination and breach of contract claims against his former employer, a labor organization. The Supreme Court of Washington held that the rule of professional conduct that allows a client to terminate an attorney at any time does not bar an in-house employee attorney from bringing a wrongful discharge or breach of contract claim against his employer (Karstetter v. King County Corrections Guild, July 18, 2019, Wiggins, J.).

In-house attorney. JaredKarstetter worked as an in-house attorney for the Kings County Corrections Guild, a labor organization, under successive five-year contracts that included a just cause termination clause. Karstetter later formed his own law firm and continued to represent the Guild and one additional client. Karstetter’s work for the Guild continued to be governed by the five-year contracts.

Cooperation with whistleblower investigation. A state ombudsman contacted Karstetter about a whistleblower complaint regarding parking reimbursement for Guild members. Karstetter cooperated with the investigation at the direction of the Guild’s vice president. The Guild later terminated Karstetter’s employment, under the advice of outside counsel, without providing the remedial options listed in his employment contract.

Karstetter and his wife, who worked as his office assistant, filed suit against the Guild alleging wrongful termination, breach of contract, and other claims. The trial court dismissed all of Karstetter’s claims except for the wrongful termination and breach of contract claims. The Court of Appeals reversed and remanded, directing the trial court to dismiss the wrongful termination and breach of contract claims as well. Karstetter requested review.

Rules of Professional Conduct. Rule of Professional Conduct 1.16 does not prohibit an in-house attorney from bringing employment claims against his or her employer, the state high court concluded. The rule permits a client to terminate the attorney-client relationship at any time. The Guild argued that this rule precludes Karstetter’s claims warranting dismissal.

However, the court held that it was unreasonable to apply this rule to all attorneys in all circumstances. The rule does not discuss nontraditional legal employment, such as corporate counsel, and whether Rule 1.16 should apply in that setting. Further, the court reasoned that attorney-client litigation is allowed in certain circumstances, and there are rules that do not apply to all attorneys, such as rules for government attorneys. Because the court held that Rule 1.16 does not bar employment claims by in-house attorneys, Karstetter’s suit did not violate the policy of treating contracts that violate the Rules of Professional Conduct as unenforceable.

Employment status of in-house attorneys. The court then discussed the unique employment status of in-house attorneys and why a different standard is warranted. Specifically, in-house attorneys often assume non-legal job duties for their employers and are professionally and financially dependent on a single client-employer, unlike traditional private practice attorneys.

Because the rules were written when most attorneys worked in traditional law firms, the court declined to apply them to Karstetter. According to the court, to hold that Rule 1.16 applies to all attorneys would allow an employer to hire an in-house attorney and agree to terms, salary, and termination for cause but discharge that attorney for any reason, or no reason at all, without consequence.

Narrow holding. The court emphasized that its holding was narrow and only applies to in-house employee attorneys alleging wrongful discharge or breach of contract against a client-employer, provided that these suits can be brought without “violence to the integrity of the attorney-client relationship.”

The court also held that Karstetter sufficiently alleged that he was an employee of the Guild. He had an employment contract with the Guild, accepted below-market pay in consideration for permanent employment, and declined to take on clients that would interfere with his full-time service to the Guild.

Whistleblower protection. The Court rejected the Guild’s claim that Karstetter was not entitled to whistleblower protection because he did not “desire to further the public good” when he cooperated with the investigation. The fact that Karstetter assisted a whistleblower, but was not the whistleblower himself, still entitled him to the protection of the statute, the court held.

Dissent. In a dissenting opinion, Judge Owens argued that Rule 1.16 serves an important public policy in promoting client trust and attorney loyalty; the administrative process, not the judicial process, is the proper method to create exceptions to the rule. Judge Owens also questioned how the court would enforce its new standard that such claims not harm the attorney-client relationship. Finally, because Karstetter’s contract with the Guild violated Rule 1.16, it should have been deemed unenforceable, reasoned the dissent.

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