August 3, 2011

Be Careful Not To Overreach in Your Confidentiality Agreements And Policies

Be Careful Not To Overreach in Your Confidentiality Agreements And Policies

A recent federal appellate decision serves as a cautionary tale against overbroad confidentiality agreements or policies. In NLRB v. Northeastern Land Services, the employer was in the business of placing temporary employees with companies and, as a part of that business process, required placed employees to sign an employment contract that provided, in part:

“Employee…understands that the terms of this employment, including compensation, are confidential to Employee and the NLS Group. Disclosure of these terms to other parties may constitute grounds for dismissal.”

In this case, the employee at issue ultimately discussed his compensation terms with management of the company where he had been placed and his employer, the temp agency that placed him with that company, terminated his employment as a result.

The appellate court had no difficulty upholding the NLRB’s conclusion that the confidentiality provision at issue was overbroad and violated section 8(a)(1) because employees “would reasonably understand the language as prohibiting discussions of their compensation with union representatives.” The court rejected the employer’s argument that it had legitimate business reasons for such a confidentiality provision. The court gave deference to the NLRB’s view that the confidentiality provision, by its clear terms, precluded employees from discussing compensation and other terms of employment with “other parties” and that employees would reasonably understand such language as prohibiting discussion of their compensation with union representatives. The fact that the provision was not enforced by the employer in a context involving a union was deemed unpersuasive by the NLRB because the provision on its face was overbroad and therefore unlawful. The federal appellate court gave deference to the NLRB’s interpretation of the law and upheld it.

In California, the provision at issue would also violate Labor Code section 232, which specifically prohibits an employer from restricting an employee’s ability to disclose his or her compensation and makes it illegal for an employer to terminate, discipline or otherwise discriminate against an employee for disclosing compensation information.