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Federal ALJ Says Confidentiality and Non-Disparagement Provisions in Employment Agreement Violate NLRA

    Client Alerts
  • April 26, 2013

As reported in detail in EmployNews over the past several years, the National Labor Relations Board has become the forum of choice for employees to challenge standard employment policies and procedures they contend interfere with their rights to organize or take collective action. Earlier this year, an Administrative Law Judge concluded that standard confidential information and non-disparagement language used in an employment agreement likewise violated Section 7 of the NLRA.

Quicken Loans v. Garza was filed by a departed mortgage loan officer who had been accused by Quicken of violation of post-employment restrictive covenants. In response, she filed an unfair labor practice charge with the NLRB contending that her employment agreement, which had been a condition of being employed by Quicken, contained restrictions that would interfere with employee rights to organize or take collective action. Specifically, she pointed to the confidential information restriction in the contract which defined that term to include personnel information including lists of employees and their contact information. She also claimed that the agreement's non-disparagement section prohibited employees from criticizing or ridiculing Quicken, its business or employees.

The ALJ agreed, concluding that the agreement was an unlawful labor practice under Section 8(a)(1) of the NLRA. The judge noted that the confidential information restrictions could impede employees who want to gather to discuss terms of employment. The non-disparagement provision could convince an employee reading its terms that legally protected complaints about the terms and conditions of employment would breach the employment agreement.

The ALJ's opinion ignores the context of these restrictions. These types of confidential information covenants are intended to prevent a departing employee from facilitating the recruitment of co-workers by a competitor by restricting access to personnel records. These restrictions also help employers comply with requirements for confidentiality of personnel information under the ADA, identity theft laws and other legal standards. The non-disparagement language is aimed at public ridicule of the employer and its employees, not collective bargaining rights. The ALJ never made any finding that Quicken had used these provisions or threatened their use in the context of labor matters.

The judge also did not comment on the fact that the plaintiff filed this charge after being accused of violating the terms of the employment agreement for reasons unrelated to Section 7 rights. This decision may be appealed to the full NLRB for review. In the meantime, employers using standard employment contracts may want to consider definitions of confidential information that do not specifically include personnel lists and contact information. The employment agreement could also contain a legal disclaimer stating that none of its provisions should be construed to restrict employee rights under the NLRA.