About the author: PJ Kee is an associate at the Jones Walker law firm in New Orleans. He and a few colleagues recently launched Trade Secret Insider, which chronicles legal insights on trade secrets, non-competes, computer fraud and confidential data theft. This article was originally posted on tradesecretsinsider.com.
This post was originally published as an article in Volume 23 of the Louisiana Employment Law Letter.
The U.S. Fifth Circuit Court of Appeals in New Orleansrecently held that an employer’s policy for protecting its confidential and proprietary information was unlawful under the National Labor Relations Act (NLRA). Specifically, the Fifth Circuit held that a broad confidentiality policy – even one protecting valuable trade secrets – violates the NLRA if it reasonably tends to chill employees’ protected rights to discuss wages. This is an unfortunate ruling for employers who are trying to implement policies to keep their trade secrets, well, secret. But, it also provides a framework for employers to revise their confidentiality policies to exclude any suggestions that employees cannot discuss their wages and to avoid a similar result.
The Confidentiality Policy And The Dispute
A trucking operation that relies on employees to transport frac sand to oil and gas well sites required its employees to sign an acknowledgement regarding the company’s confidentiality policy. It 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; Silver Eagle Logistics LLC organization management and marketing processes, plans and ideas, processes 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 makes copies of any Silver Eagle Logistics LLC records, reports or documents in any form, without prior management approval. Disclosure of Confidential Information could lead to termination, as well as other possible legal action.
In 2010, an employee filed a charge with the National Labor Relations Board (NLRB) after being fired. She alleged that the employer’s confidentiality policy was an unfair labor practice because it was tantamount to a workplace rule that prohibited employees from discussing their wages. The alleged violation stemmed from the inclusion of “personnel information and documents” within the definition of “Confidential Information.” She complained that there was no was explicit exclusion permitting wage discussions.
The NLRB’s Decision
An administrative law judge (ALJ) was the first to find that company’s policy violated its employees’ protected rights. The ALJ acknowledged that the policy did not refer to wages or any other employment terms. Nevertheless, the ALJ found that the policy was overly broad and that employees could reasonably interpret the language as forbidding discussions on wages and other terms of employment.
The employer requested review of the ALJ’s decision, but a split panel (2-1) of NLRB board members affirmed the ALJ’s decision. The majority found that the “context of the overall confidentiality rule here does nothing to remove employees’ reasonable impression that they would face termination if they were to discuss their wages with anyone outside the company.” The majority continued: “Not only does nothing in the rule suggest that ‘personnel information and document’ excludes wages, one of the other categories—‘financial information, including costs’—necessarily includes wages and thereby reinforces the likely inference that the rule proscribes wage discussion with outsiders.” Accordingly, the majority found that the confidentiality policy was an unfair labor practice under the NLRA. Flex Frac Logistics, 358 N.L.R.B. 127 (2012).
The Fifth Circuit Decision
The employer’s losing streak continued, with the Fifth Circuit affirming the NLRB’s majority decision. The Fifth Circuit began by explaining that, under Section 8(a)(1) of the NLRA, it is an unfair labor practice for an employer “to interfere with, restrain, or coerce employees” in the exercise of protected rights. Specifically, the Court explained that a workplace rule forbidding “the discussion of confidential wage information between employees … patently violate[s] section 8(a)(1).”
Turning to the employer’s specific confidentiality policy, the Fifth Circuit held that the confidentiality policy’s reference to “personnel information” and “financial information, including costs”—without an exclusion for employee wages—led employees to reasonably believe that it maintained a workplace rule barring them from discussing their wages. This policy, according to the Fifth Circuit, facially violated the NLRA and was an unfair labor practice. See Flex Frac Logistics, L.L.C. v. NLRB, No. 12-60752 (5th Cir. Mar. 24, 2014).
The Take Away
The Fifth Circuit did not consider what the dissenting NLRB member described as the “obvious legitimate business justification” for this confidentiality policy. The Fifth Circuit seemed to ignore the employer’s competitive interest in keeping this information from a competitor and instructed the employer to consider “redrafting its policy to maintain confidentiality for employee-specific information like social security numbers, medical records, background criminal checks, drug tests, and other similar information.” By limiting your policies to this type of information, you will reduce the risk of a similar result. Additionally, you may also consider expressly stating that the policy is not intended to and does not prohibit employees from engaging in protected activity or discussing their individual personnel information as permitted by applicable law. Employers should consider reviewing their confidentiality policies with their labor attorneys to make sure that they strike the proper balance between protecting trade secrets and confidential business information and avoiding potential NLRA violations. There is no better time than now, in light of this ruling, to consider scrubbing confidentiality policies of language that could be interpreted as forbidding protected discussions about employees’ wages.