Germany must reinforce in-house lawyers’ independence

The ACC’s chief legal strategist issues a rallying call for the rights of in-house lawyers

In-house lawyers have transformed the legal profession over the past 30 years. Not only have they strengthened the corporate legal function itself, but they have also implemented compliance systems designed to root out misconduct before it mushrooms. Indeed, by being intimately involved in strategic business conversations, in-house lawyers ensure that legal issues are identified and addressed in real-time.

Moreover, embedding lawyers within organisations serves broader social interests by enhancing fidelity to complex legal requirements and to the highest ethical standards. Unfortunately, rather than ensuring that all in-house lawyers have the resources and recognition to meet these high standards, some have tainted the reputation of in-house lawyers by declaring their lack of independence.

The latest example comes from Germany’s Federal Social Court, which has prohibited new in-house lawyers from participation in bar association pensions, in stark contrast with law firm lawyers. This decision imposes a second-class citizen status on in-house lawyers, which is unwarranted not only for the lawyers themselves, but also for the legal profession and the broader public.

Unfortunately, this misunderstanding is not limited to Germany.  Most infamously, in 2010, the European Court of Justice in Akzo Nobel v. European Commission denied privilege protection to in-house lawyers regarding EU competition law matters, relying again on an asserted lack of independence.

A number of EU member states themselves deny privilege protection to in-house lawyers. Worse still, some jurisdictions, like France, require in-house lawyers to surrender their law licences, once they decide to practise within companies. These errors are not limited to Europe. In the US, some courts deny privilege protection or other incidents of being a qualified lawyer, contending that in-house lawyers are acting in a business capacity or merely as liaisons.

These jurisdictions ignore the significant changes that have occurred in the in-house bar, changes which have led many of the best outside lawyers to join corporate law departments. By earning trust daily with business colleagues, these lawyers have front row seats to important discussions, avoiding legal and regulatory difficulties that a non-lawyer could not have anticipated. And, these highly experienced in-house lawyers have designed user-friendly codes of conduct and other forms of training that embed legal norms into the very spine of the corporate culture. The stature and importance of these lawyers, both inside their companies and in the legal profession at large, cannot be overestimated.

But those same lawyers don’t leave their ethical responsibilities at the door of the in-house profession. These lawyers represent the organisation itself, not senior executives or other employees. As such, in-house lawyers are allies to – not enemies of – stakeholders who seek to ensure that companies uphold their regulatory and social obligations.

Naturally, some in-house lawyers, like outside lawyers, fail to meet this burden. But every available piece of evidence suggests that a large majority of the in-house bar takes their ethical commitments just as seriously as do outside lawyers. 

While some outside lawyers may regard the court’s decision as additional confirmation of their superiority, other, more enlightened, outside lawyers, will recognise the threat to their practice as well. 

First, inside lawyers are natural allies to outside lawyers, as inside lawyers spot legal questions as they develop and then, if necessary, retain outside subject matter experts to help resolve the underlying issues.

Second, both external and internal lawyers will now consider the pension impact of any career move within the legal profession. The natural flow of legal expertise into, and out of, corporate clients will significantly diminish.

Third, the court’s precedent applies equally to non-partner-level employees, such as law firm associates. Even more so than in-house lawyers, those less-experienced associates act at the direction of others.

Fourth, internal and external lawyers both work at the direction of clients. Professional ethics rules safeguard independence for these lawyers, not whether they practice within law firms or law departments.  In fact, some law firm lawyers depend on one or two clients for their livelihood, but no court would challenge their reputation for independence.  Nor should it.

Beyond the legal industry, the court’s rationale pertains to all professions in which some of the members are also employees of other private businesses. Doctors, architects, engineers, accountants all have much to fear. 

Ironically, the court’s decision will actually foster a lack of independence for lawyers and other professionals within companies. Had the court decided otherwise, corporate employees would have recognised that the different nature of a lawyer-employee, that these lawyers have an independent standing in society, just as their outside counterparts do. In other words, in-house lawyers would be rightly seen as ‘real lawyers’.

Therefore, on behalf of the in-house bar in Germany and elsewhere, we implore all Germans to sign the pending Bundestag petition to correct the court’s erroneous decision. Not only will reversing the court’s error benefit in-house lawyers making the case for a strengthened corporate legal function, but it will also reunify the German legal profession and serve broader social interests.

Amar Sarwal, vice president and chief legal strategist at the Association of Corporate Counsel