Overly Broad Confidentiality Provisions May Violate the Law

04/02/2009 / Chris M. Heffelbower

Many employers include a confidentiality provision in their employment agreements or employee handbooks. These confidentiality agreements typically prohibit employees from disclosing pricing information, customer information, marketing plans or proposals, trade secrets and other proprietary information. Employers can get into trouble with the National Labor Relations Act (“NLRA”) when these confidentiality provisions are overly broad and can be construed to prohibit employees from discussing the “terms and conditions of their employment,” including wage information.

The National Labor Relations Act

Section 8 of the NLRA has been interpreted to bar employer interference with employees’ right to discuss the “terms and conditions of their employment” with others, including wage information. When a confidentiality policy’s language restricts employees’ ability to communicate their conditions of employment to others, it violates Section 8 of the NLRA. This provision of the NLRA applies to all employers, regardless of whether the employees are unionized.

Northeastern Land Serv. v. NLRB.

A recent First Circuit Court of Appeals decision highlights the consequences when an employer maintains an overly broad confidentiality provision. In Northeastern Land Serv. v. NLRB, 185 LRRM 3390 (1st Cir. 2009), the employer required its employees to sign an employment contract which included a provision that stated, “Employee…understands that the terms of this employment, including compensation, are confidential to Employee and the NLS Group. Disclosure of these terms to other parties may constitute grounds for dismissal.” During the course of his employment, an employee communicated to one of his employer’s clients about concerns he had regarding reimbursement of expenses and failure of his employer to pay him in a timely manner. The employer was aware of these communications and ultimately discharged the employee for violating the company’s confidentiality provision by contacting the customer directly concerning problems with his compensation.

The First Circuit affirmed the Board’s decision that the confidentiality provision was unlawful under Section 8 of the NLRA and that the employer wrongfully discharged the employee. The Board ordered that the employer rescind the confidentiality provision; notify the employer’s current and former employees of the decision; reinstate the employee to his former position or a substantially similar position; and make the employee whole for any loss of earnings and other benefits suffered as a result of the unlawful action taken against him.

On appeal, the employer asserted that the mere maintenance of a broadly worded confidentiality provision, without evidence of actual chilling of union activity, was insufficient to violate Section 8 of the NLRA. The First Circuit disagreed and held that, “An employer violates section 8(a)(1) when it maintains a work rule that would reasonably tend to chill employees in the exercise of Section 7 rights.” The Court determined that an employer’s maintenance of an overly broad confidentiality provision is an unfair labor practice, even absent evidence of enforcement, where the rule is likely to have a chilling effect on Section 7 rights (i.e., right to discuss terms and conditions of employment with others).

What This Decision Means for Employers

Employers must narrowly craft their confidentiality provisions to avoid running afoul of the NLRA. If your Company has a confidentiality policy in place, review that policy to ensure that it is not overly broad. As the Northeastern Land Serv. v. NLRB case makes clear, the mere maintenance of an overly broad confidentiality policy without actual enforcement in the face of union activity, may violate labor laws. Contact Larkin Hoffman’s employment law attorneys if your Company needs assistance in drafting a confidentiality policy or to review a current policy.