Fifth Circuit Holds that Confidentiality Agreement Prohibiting Disclosure of Financial and Personnel Information Violates NLRA

confidentiality-agreementOn Monday March 24, 2014 the U.S. Fifth Circuit Court of Appeal affirmed the National Labor Relations Board’s decision that nonunion employer FlexFrac Logistics LLC violated the NLRA by maintaining a confidentiality policy that barred workers from discussing “personnel” or “confidential” information with anyone outside the organization.

The Fifth Circuit held that the NLRB was not unreasonable when it found that employees could construe the policy as prohibiting them from discussing their wages in violation of Section 7 of the National Labor Relations Act.

In doing so, the Fifth Circuit stated:

“FlexFrac’s contention that the NLRB’s interpretation of the confidentiality clause was unreasonable is without merit”… “As the NLRB noted, the list of confidential information encompasses ‘financial information, including costs[, which] necessarily includes wages and thereby reinforces the likely inference that the rule proscribes wage discussion with outsiders.’”

The confidentiality provision in question provided:

Employees deal with and have access to information that must stay within the Organization. Confidential Information includes, but is not limited to, information that is related to: our customers, suppliers, distributors; […]organization management and marketing processes, plan and ideas, process and plans, our financial information, including costs, prices; current and future business plans, our computer and software systems and processes; personnel information and documents, and our logos, and art work. No employee is permitted to share this Confidential Information outside the organization, or to remove or make copies of any Silver Eagles Logistics LLC records, reports, or documents in any form, without prior management approval. Disclosures of Confidential Information could lead to termination, as well as other possible legal action.

A former employee of FlexFrac filed a Charge with the NLRB claiming that the provision prohibited employees from discussing the terms and conditions of their employment, and specifically their wages. An administrative law judge found that the language of the provision was “overly broad” and that employees could reasonably interpret the confidentiality clause as restricting the exercise of their Section 7 rights. A three-member panel of the NLRB affirmed the decision and FlexFrac then petitioned the Fifth Circuit Court of Appeals for review of the NLRB’s order.[1]

The Fifth Circuit upheld the NLRB’s order, indicating that where an employer’s policy does not contain an explicit prohibition against employees discussing their compensation, the existence of a violation of the Act depends on whether: (1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights.

In affirming the decision of the NLRB, the Fifth Circuit held that the terms used in FlexFrac’s confidentiality agreement, including “financial information” and “personnel information,” necessarily included wages, reinforcing the inference that the rule prohibited employees from discussing their wages. As such, the court held that FlexFrac’s employees would reasonably construe the confidentiality policy to prohibit discussion of wages in violation of the Act.

It is significant to note that the Board also found that the employee who filed the Charge was not fired in retaliation for violating the policy in question. In addition, FlexFrac’s counsel stated that no employee had ever complained that the policy prohibited them from discussing their wages.

Given the NLRB’s ever-expanding interpretation of Section 7, it is imperative that employers ensure that their policies and procedures comply with the Board’s most recent decisions.

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