Confidentiality Provision In Employment Agreement May Violate Federal Labor Law

By Maria Greco Danaher, Ogletree Deakins (Pittsburgh)

The National Labor Relations Act (NLRA) prohibits work rules that restrict discussion of wages or working conditions among employees or with a union, or rules which might “reasonably be construed” to restrict such discussions.  Recently, the National Labor Relations Board held that a temp agency violated the NLRA by including a confidentiality provision in the employment contract between the temp agency and a temporary worker, and by terminating the worker for his violation of that provision.  The Board held that the provision was unlawful because employees reasonably could construe it as restricting discussions with union representatives.  In re: Northeastern Land Services, Ltd. and John Dupuy, NLRB Case No. 1-CA-39447, June 27, 2008.

Jamison Dupuy was employed by Northeastern Land Services (NLS), a temp agency, as a right-of-way agent to perform activities related to land acquisition for El Paso Energy, which was a client of NLS.  At the outset of his assignment with El Paso, Dupuy was required by NLS to sign an employment agreement that included the following confidentiality language:  “Employee also 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.”

During the course of the El Paso project, Dupuy experienced delays in getting paid.  Because he felt that NLS was not helping him to resolve the problem, Dupuy told NLS that he was going to raise the issue directly with El Paso.  Ultimately, Dupuy did contact El Paso, raising the late payment issue as well as another compensation issue related to reimbursement for the use of his personal computer.  He also followed up with an e-mail to NLS on which he copied El Paso, mentioning the computer issue.  NLS then terminated Dupuy’s employment, stating that he had “not lived up to [his] end of the bargain” when he failed to comply with the confidentiality provision of his employment agreement by discussing compensation issues with El Paso.

Dupuy’s claim was first heard by an Administrative Law Judge (ALJ), who dismissed the complaint.  The ALJ found first that the confidentiality provision did not restrict NLS’ employees’ ability to discuss the terms of their employment with one another.  He further found that although the provision did restrict the employees’ right to discuss terms and conditions of employment with third parties, NLS had proffered a legitimate business justification that outweighed the restriction on employees’ rights when it stated that it is engaged in a very competitive industry in which confidentiality of such terms and conditions is critical.  Second, the judge determined that since the confidentiality provision was not unlawful, NLS did not violate the NLRA when it terminated Dupuy’s employment.

The Board reversed the ALJ’s decision, concluding that the NLS confidentiality provision was unlawful because employees reasonably could construe the language – which precluded discussions of compensation and other terms of employment with “other parties” – as prohibiting discussion with union representatives about those issues.  Further, because an employer’s imposition of discipline pursuant to an unlawful policy constitutes a violation of the NLRA, Dupuy’s termination was found by the Board to have been unlawful.

Based upon its findings, the Board ordered injunctive relief that included rescission of the confidentiality language in the NLS agreements, along with restatement of Dupuy, and all references to his termination deleted from his personnel file.  In addition, NLS was ordered to “make Jamison Dupuy whole for any loss of earnings and other benefits” caused by NLS’ actions.

Employers that routinely include confidentiality language in employment agreements and employee handbooks should periodically review that language to assure that it cannot be interpreted as precluding employees from discussing compensation or other employment terms and conditions with union representatives.  Such interpretation can create unintended liability for employers under the NLRA.