Does this employer have a contractual obligation to defend its employees from criminal charges? I include obligations created by corporate governance documents under this heading. Often, corporate bylaws and executive employment contracts include terms obligating the corporation to defend those in certain positions acting on behalf of the corporation.

Does the employer have an agency obligation to defend its employees from criminal charges? This may vary from jurisdiction to jurisdiction, but if my memory serves me correctly an agent committing a crime is considered to have been on a “frolic or detour” even if purporting to act on behalf of the principal unless the principal subsequently ratifies the criminal act. If the corporation ratified the agent’s acts, then agency principles may require the principal to stand by its agent. (Probably not.)

Absent a contractual or agency obligation, where would an obligation to defend arise?

There is, however, a potential fiduciary issue. What are the expectations of the corporation’s other employees? If they see these defendants being cut loose for doing something they would have done in similar circumstances, destruction of morale may cripple the company more surely than government action. If I expected the corporation to stand by me if I pushed the envelope and got caught, and then the corporation failed to defend other hard chargers, I would be sending out resumes real fast. Were enough experience and energy to bail out, the loss of value to stockholders might be considered attributable to the decision to hang the accused employees out to dry. Boom – derivative suit.

In choosing between these two evils, thank goodness for the business judgment rule.