Confidential information is confidential - well, maybe not

April 8, 2014 By Labor and Employment
Legal Update

For the last few years, the National Labor Relations Board (NLRB) has been closely scrutinizing employers' handbooks for rules that it feels inhibit employees' exercise of their Section 7 rights to engage in union organizing or other concerted activity for their mutual aid or protection.  In particular, the NLRB has focused on rules that prohibit employees from discussing their wages and benefits among themselves or with outsiders. 

Now, the U.S. Court of Appeals for the 5th Circuit (covering Louisiana, Mississippi, and Texas) has upheld an NLRB decision finding an employer maintained an unlawful confidentiality rule.  Flex Frac Logistics v. NLRB (March 24, 2014).    

Flex Frac is a nonunion trucking company that delivers frac sand to oil and gas well sites in Texas.  It requires its employees to sign a document which includes a confidentiality clause that defines confidential information as including "…financial information, including costs…personnel information and documents…" among many other categories of typically confidential information.  Disclosing any confidential information outside the company "could lead to termination."  The NLRB found that the Company promulgated and maintained a rule prohibiting employees from discussing their wages. 

As the rule does not explicitly restrict employees from engaging in activities protected by Section 7 of the National Labor Relations Act ("the Act"), the Court analyzed the rule under established NLRB precedent in its decision in Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004).  Under that NLRB decision, a rule violates the Act when:

The Court agreed with the NLRB that employees would reasonably construe the language as prohibiting them from discussing their wages outside the company.  First, the Court accepted the NLRB conclusion that "financial information, including costs necessarily includes wages and thereby reinforces the likely inference that the rule proscribes wage discussions with outsiders."  Second, the Court noted that the rule fails to give any indication that employee wages are not included within the term personnel information.  Finally, the Court found it irrelevant that employees did not interpret the rule as restricting the exercise of their rights under the Act. 

The Court distinguished NLRB cases relied on by Flex Frac which upheld confidentiality rules.  In one case, the NLRB approved a rule prohibiting the disclosure of undefined Hotel-private information to employees or other individuals not authorized to receive the information on the basis that the employees reasonably would understand the rule was not designed to prohibit the discussion of their wages.  Lafayette Park Hotel, 326 NLRB 824 (1998).  In another case, the NLRB upheld a rule prohibiting the disclosure of undefined confidential company business and documents.  K-Mart, 330 NLRB 263 (1999).  The Court held that there is a "substantial difference" between "Hotel-private information" and "company business and documents" on the one hand and "personnel information" on the other.  Additionally, the Court concluded that by listing "personnel information" the company implicitly included wage information, particularly in light of the prohibition against disclosing costs. 

The Court also distinguished an NLRB decision approving a rule prohibiting the disclosure of "proprietary information includ[ing] … employee information … [and] financial information" because they were listed as examples of "intellectual property" and could not reasonably be read to extend to terms and conditions of employment.  Mediaone of Greater Fla., 340 NLRB 277 (2003).  On the contrary, the Court noted that Flex Frac's rule contains no limitation on the type of "personnel information" that is prohibited. 

In a footnote, the Court noted that its order enforcing the NLRB's decision only prohibits the company from promulgating and maintaining an overly broad and ambiguous confidentiality rule that may reasonably be read to prohibit employees from discussing wages or other terms and conditions of employment.  On the other hand, the Court stated that nothing prevents the company from redrafting the rule to preserve confidentiality of "employee-specific information like social security numbers, medical records, background criminal checks, drug tests, and other similar information." 

This decision demonstrates the continuing difficulty of drafting confidentiality rules that will pass NLRB and court muster, particularly now that the Obama-Board is at full complement.  Substantial care must be paid to the specific words that are used.  Generally, the more all-encompassing rule, the more likely the NLRB will find it to be overbroad and to violate the Act.  The more specifically the rule exempts employee activities such as discussing wages from its coverage, the more likely it will be acceptable. 

For more information, contact Raymond D. Neusch or John T. Lovett, or any other member of the Frost Brown Todd Labor and Employment Practice Group.

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