New 1st Circut Decision on Confidentiality Provisions

(Cross-posted at the Mass High Tech site)

The Young Tech Company's Introduction to the NLRA and Confidentiality

By Terry Klein and Matthew T. Henshon


“The National Labor Relations Act? I thought that was for Big Labor. What’s that got to do with my growing tech company?”

Potentially, a lot.

The First Circuit Court of Appeals has helpfully reminded employers in the private sector that the NLRA has a broader reach than they might think. Historically, the NLRA was enacted to protect the rights of employees and employers to engage in collective bargaining. It codifies the rights of employees to organize, establishes the National Labor Relations Board, governs union elections, and forbids certain unfair labor practices by employers and union organizations. Examples of such practices include employer interference in employees’ efforts to organize, an employer’s refusal to bargain with employee representatives (and vice versa), and conduct by unions that amounts to coercing employees to organize or employers to enter into collective bargaining agreements.

But the language of the NLRA is very broad, invoking a different era when many – if not most – employers faced the prospect of a unionized workforce. And that broad language could still apply to a “New Economy” company.

Earlier this week, the court issued a decision that could affect all employers that include confidentiality provisions in employment agreements, whether they are union shops or not. The court found that one such employer had engaged in an unfair labor practice when it terminated an employee for violating one such confidentiality provision. It did so in spite of the fact that the employer’s workforce was not unionized, and in spite of the fact that the employer was terminated for discussing the terms of his employment with one of the employer’s clients, as opposed to one of his coworkers. Employers that include confidentiality provisions in their employment agreements would be well served to review those provisions to ensure that they comply with the NLRA.

NLRB v. Northeastern Land Services Ltd. presented the First Circuit with the question of whether including a confidentiality provision in an employment agreement constituted an unfair labor practice. While a 2009 First Circuit opinion in the same case concentrated on NLRB procedure (and was vacated by the U.S. Supreme Court), the latest decision returns the focus to the substantive interplay between the NLRA and employee confidentiality agreements.

NLS is a temporary employment agency that supplies workers to companies in the natural gas and telecommunications industry. The employee who filed the unfair labor practices charge with the NLRB signed a temporary employment contract stating that he “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 connection with a dispute with NLS over reimbursable expenses, the employee notified the temp agency’s client that he would be offline until the dispute was resolved. NLS terminated him. He responded by filing a charge with the NLRB. It was undisputed that NLS had not terminated him for discussing the terms of his employment with fellow employees in connection with a union organizing effort, but instead for disclosing terms to a client. The First Circuit is silent as to whether other NLS employees were union members or were seeking to organize collectively.

The court nonetheless concluded that the provision at issue violated Section 8(a)(1) of the NLRA and that by terminating an employee for violating the provision, the employer had engaged in an unfair labor practice. Stating the broader rule, the Court held that a confidentiality provision is unlawful if (1) employees would reasonably construe it to forbid organizing activity, (2) it was promulgated in response to union activity, or (3) the provision has been used to restrict the exercise of organizing rights. Firing an employee for taking issue with the terms of his employment, the court stated, “went to a prime area of concern” under the NLRA.

The First Circuit’s restatement of its 2009 decision should prompt employers to review employment agreements that include confidentiality provisions. While temporary employment agencies will certainly want to subject their agreements to close examination, other employers for which confidentiality provisions are important should also take note.

The court does not, of course, hold all confidentiality provisions to be automatically void. Narrow provisions that prohibit disclosure of “company business and documents”, for example, are most likely lawful. But, as the court decision makes clear, the mere inclusion of a confidentiality provision can violate the NLRA. And terminating an employee for acting contrary to the provision will constitute still another violation. In NLS’s case, the NLRB forced the company to rehire the employee and pay him damages related to his termination.

Technology companies are not fertile grounds for the type of union organizing that the NLRA is intended to protect, to be sure. But in the context of an employment dispute – say, attempting to enforce a non-compete provision against a former employee – an enterprising employee would be sure to use a broad confidentiality provision and a potential NLRA claim as leverage. Whether located in the First Circuit or not, businesses would be wise to make sure their confidentiality provisions are narrowly tailored to fit specific business needs.