On Issues of Right vs. Wrong Business Owners and Executives Should Listen to Lawyers — But Think for Themselves

Some times a character test presents itself in the guise of a legal question.

And when that character test presents itself it’s the duty of general management — not their lawyers — to decide with wisdom and discernment.

Because — except where there is an actual violation of law or of the bar authority’s canons of ethics — lawyers considering moral issues can miss the forest (discernment) for the trees (strict, technical rule compliance).

Consider this sequence relating to Tesla:

1. Two months ago California’s Division of Occupational Safety and Health opened an investigation into Tesla following a report about “underreporting recordable work-related injuries and illnesses”.

2. Two weeks ago Tesla announced that it would lay off nine percent of its work force.

3. Ten days ago (June 18) Bloomberg reported that — as a condition to receiving severance payments — Tesla would require a laid-off employee to sign the following statement of fact:

” [The laid-off employee] had the opportunity to raise any safety concerns, safety complaints, or whistleblower activities against the company, and that if any safety concerns, safety complaints, or whistleblower activities were raised during your employment, they were addressed to your satisfaction.”

Temple University law professor Brishen Rogers:

“I do think the agreement will chill valid employee complaints …. A reasonable worker would just keep their mouth shut, rather than risk losing their severance pay.”

Ya think?

In March of this year Munger, Tolles & Olson, a prestigious and large law firm, was reported to have required all incoming summer associates (usually law students one year from graduation) to sign mandatory arbitration agreements meant to cover all Title VII claims of race and sex discrimination — including sexual harassment.

Munger, Tolles & Olson was not alone in such tactics to limit summer associates’ legal options where unwanted sexual advances take place (see here, here, and here).

In the case of Munger, Tolles & Olson, according to the blog “Above the Law”, this bit of easy-to-miss technical contract language was leaked on Twitter over the March 24 / 25 weekend by a Harvard Law lecturer named Ian Samuel:

“You would have to be willfully ignorant not to get what this is about”.

Law students accepting a summer job with this law firm, “would not only have to arbitrate sexual harassment claims, but they’d also be held to a confidentiality clause, wrapping their allegations in the shroud of privacy.”

The law firm announced that they’d canceled this approach in a Tweet whose first sentence read:

“Munger, Tolles & Olson is committed to the highest standards of conduct.”

If you say so ….

According to the Securities & Exchange Commission (SEC), Kellogg Brown & Root (KBR) required all current and former employees, “to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC”. Such agreements, “prohibited employees who reported fraud from discussing the ‘subject matter’ of their allegations with anyone, including government auditors and investigators, without ‘specific authorization’ from the company.”

The deposition of a KBR attorney revealed that such agreements had been used to limit KBR current and former employees’ reporting to the authorities “for years”.

Here the SEC charged KBR “with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act”. KBR later paid a small ($130,000) fine and “voluntarily” changed its confidentiality agreements under SEC pressure.

Some lawyer — likely an experienced and expensive one — wrote Tesla’s sing-for-your-supper severance contract affirmation.

Some lawyer — likely an experienced and expensive one — wrote Munger, Tolles & Olson’s I-agree-not-to-sue-for-sexual-harassment arbitration contract.

Some lawyer — likely an experienced and expensive one — wrote Kellogg Brown & Root’s I’ll-talk-to-my-superiors-and-get-their-permission-before-reporting-fraud-to-the-FBI promise.

Lawyers’ advice is imperative for understanding specific legal risks.

But discernment and good judgment — ultimately — are the job of general management.