Executive Summary: The Fifth Circuit recently found that a confidentiality agreement prohibiting disclosure of "financial" and "personnel information" was unlawful under the National Labor Relations Act (NLRA). Employers who use confidentiality agreements to protect their confidential business information should use caution to ensure that the terms of the agreement will not be construed to prohibit employee discussion of wages or other terms and conditions of employment.
Flex Frac is a non-union trucking company based in Forth Worth, Texas, which required its employees to agree to a confidentiality clause containing the following restrictions:
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.
In 2010, a former employee filed a charge with the National Labor Relations Board (NLRB) alleging that the confidentiality clause prohibited employees from discussing the terms and conditions of their employment, namely, their wages. An administrative law judge found that, although the language in the release did not specifically address "wages" or other specific terms and conditions of employment, it was "overly broad" and employees could reasonable interpret the confidentiality clause as restricting the exercise of their Section 7 rights. A divided three-member panel of the NLRB affirmed the decision. Flex Frac petitioned the Fifth Circuit Court of Appeals for review of the NLRB's order.
The Fifth Circuit upheld the NLRB's order, applying the general principle that a "workplace rule that forbids the discussion of confidential wage information between employees patently violates Section 8(a)(1)." However, the court recognized that where an employer's policy does not contain an "explicit" restriction – as was the case with Flex Frac's generally worded confidentiality clause – the existence of a Section 8(a)(1) violation 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. The Fifth Circuit adopted the NLRB's reasoning that the terms used in Flex Frac's confidentiality agreement, including "financial information" and "personnel information," "necessarily includes wages and thereby reinforces the likely inference that the rule proscribes wage discussion with outsiders." As such, the court held that Flex Frac's employees would reasonably construe the confidentiality policy to prohibit discussion of wages in violation of Section 8(a)(1).
Employers' Bottom Line:
All employers (even those without a union) must use care in drafting employee confidentiality agreements. Even if a confidentiality agreement does not expressly prohibit discussion of the terms and conditions of employment, provisions in the agreement that could reasonably be construed as doing so may create liability under the NLRA.
 The Fifth Circuit declined to decide Flex Frac's argument that President Obama's recess appointment of several members of the NLRB was unconstitutional, finding that the argument was not timely made. Flex Frac's argument was similar to the challenge to recess appointments presented in Noel Canning v. NLRB (http://www.fordharrison.com/8996), a case currently under consideration by the United States Supreme Court. We expect the Supreme Court will issue its decision in the Noel Canning case sometime in June.