ALJ Finds Individual Confidentiality and Non-Disparagement Clauses Violate NLRA Section 7 Rights

The National Labor Relations Board (“NLRB”) is increasingly applying the rights under the National Labor Relations Act (“NLRA”) to individual employment contracts for employees that are covered by the NLRA. Most recently, in Quicken Loans, Inc., No. 28-CA-75857 (Jan. 8, 2013), Administrative Law Judge Joel P. Biblowitz (“Judge Biblowitz”) determined that two provisions contained in an individual employment agreement, the “Proprietary/Confidential Information” and “Non-Disparagement” clauses, are unlawful under the NLRA. In light of this decision, employers seeking to protect their proprietary information may wish to review their individual employment agreements to ensure that any confidentiality and non-disparagement provisions comply with the NLRA.

Background
Lydia Garza (“Garza”) was employed as a mortgage banker for Quicken Loans, Inc. (the “Company”) from 2006 to 2011. At the beginning of Garza’s employment, she entered into a Mortgage Banker Employment Agreement (the “Agreement”) with the Company. All employees employed as mortgage bankers with the Company are required to sign the Agreement and no employee of the Company had ever been disciplined for violating the Agreement.

After Garza resigned in 2011, the Company sent her a letter regarding her continuing obligations to the Company. The Company also sued Garza and five other former employees for an alleged violation of no contact/no raiding and non-compete provisions of the Agreement. Garza then filed an unfair labor practice charge against the Company, alleging that that two clauses in the Agreement, the “Proprietary/Confidential Information” and “Non-Disparagement” clauses, were overly broad and discriminatory, in violation of Section 8(a)(1) of the NLRA.

Test for Violation of NLRA
Section 7 of the NLRA gives employees the right to:

[S]elf-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, [and] the right to refrain from any or all such activities . . . .

29 U.S.C. § 157.
Section 8(a)(1) of the NLRA states that:

It shall be an unfair labor practice for an employer . . . (1) to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7 [section 157 of this title].

29 U.S.C. § 158.

In analyzing the legality of the “Proprietary/Confidential Information” and “Non-Disparagement” clauses of the Agreement, Judge Biblowitz inquired as to whether the clauses would “reasonably tend to chill employees in the exercise of their Section 7 rights [under the NLRA]. Where the rules are likely to have a chilling effect on Section 7 rights, the [NLRB] may conclude that their maintenance is an unfair labor practice [in violation of Section 8(a)(1) of the NLRA] even absent evidence of enforcement.” Lafayette Park Hotel, 326 NLRB 824, 828 (1998), enfd. 203 F.3d 52 (D.C. Cir. 1999).
Further, the NLRB examines:

[W]hether the [clause] explicitly restricts activities protected by Section 7. If it does, [the NLRB] will find the rule unlawful. If the rule does not explicitly restrict activity protected by Section 7, the violation is dependent upon the showing of one of the following: (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.

Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004).

Proprietary/Confidential Information Clause
Judge Biblowitz determined that the “Proprietary/Confidential Information” clause of the Agreement violates Section 8(a)(1) of the NLRA because the restrictions in the clause “would substantially hinder employees in the exercise of their Section 7 rights.” This clause required employees to maintain proprietary and confidential information “in the strictest of confidence” and employees “shall not disclose [it] to any person, business or entity.”
The Agreement defined proprietary and confidential information as “non-public information relating to…the Company’s business, personnel . . . all personnel lists, personal information of coworkers . . . personnel information such as home phone numbers, cell phone numbers, addresses and email addresses.”
Judge Biblowitz held that the Agreement violated employees’ Section 7 rights because employees would not be permitted to discuss with others the names, wages received, benefits received, addresses or telephone numbers of other employees, curtailing their Section 7 protected concerted activities.

Non-Disparagement Clause
Judge Biblowitz determined that the “Non-Disparagement” clause of the Agreement violates Section 8(a)(1) of the NLRA because an employee reading the restrictions could reasonably construe them as restricting his or her rights to engage in protected concerted activities. This clause stated that employees will not “…publicly criticize, ridicule, disparage or defame the Company or its products, services, policies . . . through any written or oral statement . . . .”
Judge Biblowitz held that the Agreement violated employees’ Section 7 rights because:

Within certain limits, employees are allowed to criticize their employer and its products as part of their Section 7 rights, and employees sometime do so in appealing to the public, or to their fellow employees, in order to gain their support. A reasonable employee could conclude that the prohibitions contained in the Agreement prohibited them from doing so.

Conclusion
The determinations in Quicken Loans, Inc., reveal several lessons for employers regarding employees’ rights under the NLRA.
First, the provisions of the NLRA apply to both collective bargaining situations and individual employment agreements for employees covered by the NLRA. See, e.g., D.R. Horton Inc., 357 N.L.R.B. No. 184, 2012 WL 36274, at *4 (January 3, 2012); National Licorice Co. v. NLRB, 309 U.S. 350, 360 (1940).

Second, even where no employee is ever disciplined for violating proprietary/confidential information or non-disparagement provisions, the mere existence of the clauses may violate the NLRA.

Third, proprietary/confidential information or non-disparagement provisions should be carefully and narrowly worded to avoid claims of over-broadness or discrimination under the NLRA.
For these reasons, employers may wish to review their individual employment agreements to ensure that any confidentiality and non-disparagement provisions comply with the NLRA. If the enforceability of any provision is questionable, employers may wish to rescind questionable clauses, draft new clauses that are lawfully worded under the NLRA, and update Company policies and handbooks.

If your company would like to learn more about how employee rights under the NLRA may affect your agreements and procedures, please contact any of the Trepanier MacGillis Battina P.A. employment law attorneys.
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Trepanier MacGillis Battina P.A. is a Minnesota employment law firm located in Minneapolis, Minnesota. Their employment law attorneys can be reached at 612.455.0500.