United States: D.C. Circuit Upholds NLRB Finding that Employment Agreement's Confidentiality and Non-Disparagement Provisions Violated the NLRA

Seyfarth Synopsis: The U.S. Court of Appeals for the D.C. Circuit recently denied Quicken Loans, Inc.'s petition for review of an NLRB decision finding that confidentiality and non-disparagement provisions in the company's Mortgage Banker Employment Agreement unreasonably burdened employees' rights under Section 7 of the NLRA.

Back in 2013, an NLRB administrative law judge found that certain confidentiality and non-disparagement provisions contained in Quicken's Mortgage Banker Employment Agreement violated the NLRA (see our earlier blog post here). The Board agreed with the ALJ, and the Company petitioned the D.C. Circuit for review. Recently a three-judge panel of the D.C. Circuit denied the Company's petition for review and granted the NLRB's cross-application for enforcement, finding that there was nothing arbitrary or capricious about the Board's decision and there was no abuse of discretion in the Board's hearing process (Case No. 14-1231).

Facts

As a condition of employment, mortgage bankers were required to sign a Mortgage Banker Employment Agreement that included a confidentiality provision and a non-disparagement provision. The confidentiality provision prohibited employees from disclosing nonpublic information regarding the company's personnel, including personnel lists, handbooks, personnel files, and personnel information of coworkers such as phone numbers, addresses, and email addresses. The non-disparagement provision prohibited employees from publicly criticizing, ridiculing, disparaging or defaming the company or its products, services, policies, directors, officers, shareholders or employees.

Court's Reasoning

The D.C. Circuit noted that its review of the Board's decision was limited, as Congress has entrusted the Board with implementing Sections 7 and 8(a)(1) of the Act and determining when an employer's workplace rules run afoul of those provisions. The three-judge panel noted that the Board's determinations are therefore entitled to considerable deference and will be sustained as long as the Board "faithfully applies" the legal standards and its textual analysis of a challenged rule is "reasonably defensible" and adequately explained.

In finding that the Board properly determined that the confidentiality provision violated employees' Section 7 rights, the court noted that the very information the provision forbids employees from sharing (i.e., personnel lists and employee rosters) has long been recognized as information that employees must be permitted to gather and share among themselves and with union organizers. With respect to the non-disparagement provision, the court found that the Board "quite reasonably found that such a sweeping gag order would significantly impede mortgage bankers' exercise of their Section 7 rights because it directly forbids them to express negative opinions about the company, its policies, and its leadership in almost any public forum."

In reaching its conclusions, the appeals court noted that the validity of a workplace rule turns not on subjective employee understandings or actual enforcement patterns, but on an objective inquiry into how a reasonable employee would understand the rule's disputed language. The court observed that this approach serves "an important prophylactic function: it allows the Board to block rules that might chill the exercise of employees' rights by cowing the employees into inaction," rather than forcing the Board to wait until that chill is manifest and then try to undertake the difficult task of dispelling it. The court also noted that the absence of enforcement "could just as readily show that employees had buckled under the Employment Agreement's threat of enforcement."

Employer Takeaway

In recent years, the Board has issued numerous decisions in which workplace rules were found to unlawfully restrict employees' Section 7 rights, and the D.C. Circuit's decision demonstrates that employer petitions for review of such decisions may not be successful. The decision also highlights the need to not just draft and review employee handbooks and policies for possible non-compliance with the NLRA, but employment agreements as well.

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