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Confidentiality and Non-Disclosure Rules Challenged Under the National Labor Relations Act

December 31, 1999

Many employers promulgate and enforce policies prohibiting employees from disclosing confidential business information. While such policies generally play an important part in protecting the employer's proprietary and other confidential information, employers should be aware of recent decisions suggesting that, unless carefully drafted, such rules may run afoul of the National Labor Relations Act (the "Act").

The National Labor Relations Board (the "Board") has long held that a rule prohibiting employees from discussing or disclosing their wages or other terms and conditions of employment violates the Act. In fact, even if the rule is never enforced, the mere promulgation or maintenance of such a rule is itself a violation of the Act because it could chill the employees in the exercise of their rights to unionize or engage in other concerted activity for mutual aid -- rights protected under Section 7 of the Act. For example, a hospital's rule prohibiting employees from discussing "hospital affairs . . . and employee problems," was found to be unlawful, because it could be construed by employees to preclude discussing terms and conditions of employment including wages. Pontiac Osteopathic Hospital, 284 NLRB 442, 466 (1987).

In several recent pronouncements, the Board has applied these principles in the context of challenges to employer rules prohibiting the disclosure of confidential information.

In Lafayette Park, 326 NLRB No.69 (1998), for example, the employer, a hotel, was charged with maintaining an unlawful rule in its handbook. That rule stated:

The following conduct is unacceptable: . . . Divulging Hotel-private information to employees or other individuals or entities that are not authorized

A union filed an unfair labor practice charge, claiming that the provision was unlawful; the union argued that because the term "Hotel-private" was not defined in the handbook, employees could reasonably believe that the rule prohibited discussions among employees concerning wages, benefits and other terms and conditions of employment.

Although the Board's General Counsel issued a complaint with respect to the charge, a 3-2 majority of the Board rejected the challenge to the policy, ruling that businesses have a "substantial and legitimate interest in maintaining the confidentiality of private information, including guest information, trade secrets, contracts with suppliers, and a range of other proprietary information." Although the rule did not explicitly define "Hotel-private information," the Board found that just as employees would not construe the rule as precluding them from disclosing their wage information in the normal course of events to banks, credit agencies, and similar entities, they also would not reasonably interpret the rule as prohibiting discussions of wage information with other employees or a union. Accordingly, the Board held, over a vigorous dissent, that the rule did not chill organizational activity, and the handbook provision was found to be lawful.

Earlier this year, the Office of the Board's General Counsel, Division of Advice, had occasion to apply the Lafayette Park standard in an Advice Memorandum issued on February 10, 1999. In that case, an employee had posted an internal management memorandum on the Internet, and the employer disciplined the employee for violating its rule prohibiting employees from publishing, displaying or distributing company materials that are self-evidently not intended for public dissemination. The Division of Advice found that the employer's rule was not facially unlawful because, like the rule in Lafayette Park, the rule was designed to protect against disclosure of documents as to which the employer has a legitimate confidentiality interest, and employees would not reasonably understand the rule as prohibiting discussions concerning wages, benefits, and other terms and conditions of employment.

After finding that the policy was not unlawful on its face, the Division of Advice went on to determine whether it was unlawful as applied. The Division noted that the disclosure of certain types of information may involve such disloyalty to an employer that the disclosure falls outside the protection of the Act. Here, the document posted on the internet was a memorandum from one manager to another, which discussed the prospect of creating an early retirement program and which was marked "Internal Correspondence." Under these circumstances, the Division of Advice concluded, the employer had a right to expect that an employee who happened upon the document would not place the document in the public domain by posting it on the internet. Accordingly, the Division of Advice recommended that the charge be dismissed in its entirety.

More recently, on November 30, 1999, the Board issued two decisions which together illustrate the fine line between a lawful and an unlawful confidentiality rule. In one case, Flamingo Hilton-Laughlin, 330 NLRB No. 34 (1999), the rule stated:

Employees will not reveal confidential information regarding our customers, fellow employees or Hotel business . . . Much of the Hotel business is confidential and must not be discussed with any party not associated with the Hotel . . . The Hotel considers all information not previously disclosed to outside parties by official Hotel channels to be proprietary information.

In the other case, K-Mart, d/b/a Super K-Mart, 330 NLRB No. 29 (1999), the employer's rule stated:

Company business and documents are confidential. Disclosure of such information is prohibited.

The Board found the Flamingo Hilton provision to be unlawful and the K-Mart provision lawful. The Board reasoned that the Flamingo Hilton rule could be interpreted as limiting employee discussion of wages and other terms and conditions of employment; on the other hand, the Board concluded that employees reasonably would understand from the language of the K-Mart rule that it was designed to protect the employer's private business information, not to prohibit discussion of wages or working conditions. Thus, the Board found no distinction between the K-Mart rule and the rule in the Lafayette Park case, discussed above, prohibiting the disclosure of "Hotel-private information."

These recent pronouncements by the Board provide employers with a degree of confidence that carefully drafted confidentiality and non-disclosure policies will be considered lawful and enforceable to prevent disclosure of sensitive information. All employers -- both unionized and non-union -- should review their confidentiality and non-disclosure rules to ensure that they are not facially invalid under the Act. Further, employers should take care when enforcing such a policy, to ensure that the employer is not enforcing the policy in such a way as to interfere with an employee's Section 7 rights. With appropriate attention to this issue, employers should now be able to both comply with the Act and protect against the disclosure or dissemination of confidential information.