The U.S. Court of Appeals for the District of Columbia Circuit recently denied a mortgage company’s petition for review and granted the National Labor Relations Board’s cross-petition for enforcement, holding that the NLRB correctly determined that the mortgage company’s workplace rules unreasonably burdened its employees’ ability to discuss legitimate employment matters, protest employer practices and organize in violation of section 7 of the National Labor Relations Act.

A copy of the opinion is available at:  Link to Opinion.

A loan officer began working in the mortgage company’s Scottsdale, Arizona office and signed an employment agreement containing confidentiality and non-disparagement provisions. She resigned in 2011 and began working at a competitor.

The mortgage company sued to enforce the employment agreement, to which the loan officer responded by filing an unfair labor practice claim with the National Labor Relations Board, arguing that the confidentiality and non-disparagement rules violated Section 7 of the National Labor Relations Act (NLRA).

The NLRB filed an unfair labor practice complaint against the mortgage company alleging that the rules violated Section 8(a)(1) of the NLRA, 29 U.S.C. § 158(a)(1).

An administrative law judge (“ALJ”) held an evidentiary hearing and sustained the NLRB’s complaint, finding that both of the subject contractual provisions violated Section 8(a)(1) of the NLRA because they supposedly interfered with the exercise of loan officer employees’ Section 7 rights.

The ALJ reasoned this was “because the [confidentiality rule] flatly forbade employees from discussing ‘with others, including their fellow employees or union representatives, the wages and other benefits that they receive,’ and ‘the names, wages, benefits, addresses or telephone numbers of other employees.’” In addition, the ALJ found the non-disparagement rule “invalid because it prohibited employees from ‘publicly criticiz[ing], ridicul[ing], disparag[ing] or defam[ing] the Company or its products, services, [or] policies … through any written act or oral statement.’”

The NLRB affirmed the ALJ’s ruling, but instead of rescinding the confidentiality provision completely, the NLRB required the mortgage company to only delete certain offending language.

On appeal from the NLRB’s decision, the DC Circuit Court of Appeals began by emphasizing that its review was limited, because the NLRB’s decisions, as the agency charged by Congress with enforcing the Act, “’are 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…..”

As you may recall, section 7 of the NLRA guarantees employees ‘the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representative of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.’ … Those rights ‘necessarily encompass’ employees’ rights to … ‘seek to improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship ….’”

Employers that “‘interfere with, restrain, or coerce employees in the exercise of the rights guaranteed’ by section 7 commit an unfair labor practice, 29 U.S.C. § 158(a)(1), and are subject to civil sanction by the Board, id. § 160(a).”

The test of whether workplace rules violate section 7 involves “an objective inquiry into ‘whether the rules would reasonably tend to chill employees in the exercise of their statutory rights.’” Lawful employee activities can be “chilled” in two ways: (a) facially, “by, for example, explicitly barring employees from complaining to third parties about their working conditions … [or (b)] even if facially unobjectionable, a rule is invalid if (i) ‘employees would reasonably construe the language to prohibit Section 7 activity’; (ii) the rule ‘was promulgated in response to union activity’; or (iii) ‘the rule has been applied to restrict the exercise of Section 7 rights.’”

The DC Circuit Court of Appeals concluded that “[t]he Board properly determined that [the confidentiality rule], as applied to personnel information, directly impinged upon employees’ Section 7 rights … [because] personnel lists, employee rosters, and employee contact information—has long been recognized as information that employees must be permitted to gather and share among themselves and with union organizers in exercising their Section 7 rights.”

The same applied to “’handbooks’ and other types of workplace information contained in ‘personnel files’ [because the company’s] blanket prohibition directly interferes with mortgage bankers’ ability to discuss their wages and other terms and conditions of employment with their fellow employees or union organizers, which is a core Section 7 right.”

The Court rejected the mortgage company’s objections to the NLRB’s decision to exclude evidence of the former employee’s understanding of the rules because her subjective interpretation or how she actually understood the meaning of the rules was irrelevant. “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. Thus, ‘[t]he Board is merely required to determine whether ‘employees would reasonably construe the [disputed] language to prohibit Section 7 activity, … and not whether employees have thus construed the rule.’”

The DC Circuit Court of Appeals also rejected the mortgage company’s argument that the NLRB failed to consider the mortgage company’s legitimate interest in protecting non-public information because the NLRB confined its decision to how the confidentiality rule affected “the types of personnel information protected by Section 7 … [and] the Board left portions of the Rule protecting proprietary information intact, and it afforded … adequate room to revise and ‘narrowly tailor the … rule to achieve its goal without interfering with Section 7 activity….”

Simply put, the Court held that the mortgage company’s “claim that some sub-portion of the covered information could properly be protected does nothing to legitimate the blunderbuss sweep of its existing rule.”

Finally, the DC Circuit Court of Appeals rejected the mortgage company’s argument that the confidentiality rule’s “disputed language only protects non-public information of co-workers” because the company’s “so-called ‘widely publicized’ personnel information … is little more than a general description on its recruiting website of the mortgage banker position and the generic salary and benefits packages that might be available to successful applicants.”

Thus, the Court held, the NLRB could reasonably find that “[i]t beggars belief” “that [the company’s] mortgage bankers would view the company’s publication of such generalized information as relaxing the Rule’s explicit and absolute prohibition against employees disclosing all manner of ‘personnel information,’ including actual employee pay and benefits.”

Turning to the non-disparagement provision, the Court concluded that it “similarly flies in the teeth of Section 7,” because the provision “prohibits mortgage bankers from ‘publicly criticiz[ing], ridicul[ing], disparag[ing], or defam[ing] the Company or its products, services, policies, directors, officers, shareholders, or employees’ in any written or oral statement, including on the internet or even in private emails.”

The Court reasoned that “[t]he 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.”

Because the DC Circuit Court of Appeals held that the NLRB correctly determined that the mortgage company’s employees “would reasonably construe the sweeping prohibitions [of the company’s confidentiality and non-disparagement rules] as trenching upon their rights to discuss and object to employment terms and conditions, and to coordinate efforts and organize to promote employee interests,” the Court denied the mortgage company’s petition for review and granted the NLRB’s cross-application for enforcement.