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NLRB Says General Conflict of Interest Policies Violate Federal Labor Law

    Client Alerts
  • August 23, 2016

Another week, another National Labor Relations Board decision concluding that a standard employee handbook policy violates employees’ rights to engage in protected concerted activity under Section 7 of the NLRA. This time, the Board had a business conflicts of interest policy in its crosshairs. These common policies prohibit employees from engaging in business activities that conflict with their employer’s interests. Examples would include purchasing goods from a family member or diverting a corporate business opportunity for one’s own gain.

In Schwan’s Home Service, the employer had in place a standard conflict of interest policy. While it provided examples such as having a financial interest in a vendor or competitor, the policy also contained more general prohibitions against “conduct on or off duty which is detrimental to the best interests of the company or its employees.” The Board zeroed in on this provision, concluding that it is overbroad, and could be interpreted by employees as prohibiting efforts to complain as a group about the terms and conditions of employment. The NLRB noted that the policy contained no examples of conduct prohibited under this provision, and no disclaimer about its applicability to concerted activity rights.

The Board rejected the employer’s argument that this provision, when read in the context of the entire conflict of interest policy, applies to business activities and not concerted action. While not prohibiting conflict of interest policies, the NLRB’s view is that they must be narrowly written, include specific examples of prohibited conduct and contain explicit disclaimers of their applicability to employee rights under federal labor laws. When combined with other decisions involving similar policies, the Board’s view of legal employee handbooks sharply varies from that typically used by most employers. Given federal court’s increasing approval of the Board’s position, employers should strongly consider initiating a comprehensive review of their employment policies and procedures to identify NLRA compliance problem areas.