The Costco Decision

In a very recent decision, the National Labor Relations Board (“NLRB” or “Board”) held that a work rule in Costco Wholesale Corporation’s employee handbook that prohibited employees from posting communications that “defame any individual or damage any person’s reputation” was unlawful. Costco Wholesale Corp., 358 NLRB No. 106 (9/7/12).

The work rule in Costco’s employee handbook stated:

Any communication transmitted, stored or displayed electronically must comply with the policies outlined in the Costco Employee Agreement. Employees should be aware that statements posted electronically (such as [to] online message boards or discussion groups) that damage the Company, defame any individual or damage any person’s reputation, or violate the policies outlined in the Costco Employee Agreement, may be subject to discipline, up to and including termination of employment.

Reversing the Administrative Law Judge that heard the case, the NLRB held that Costco’s employees could “reasonably conclude that the rule requires them to refrain from engaging in certain protected communications (i.e., those that are critical of the [employer] or its agents).” Accordingly, the NLRB ruled that since the Costco work rule tended to chill the employees’ right to engage in activities that are protected by the National Labor Relations Act (NLRA), its promulgation, maintenance and enforcement violated NLRA.

  1. Employers May be Liable for their Employees’ Defamatory Statements.

The NLRB decision finding Costco’s rule unlawful does not even mention, much less analyze, well-established principles of law that impose on employers responsibility for their employees’ defamatory statements, when the defamation occurs within the scope of the employees’ employment. Ignoring the long line of cases in which employers have been held liable under the principles of respondeat superior for their employees’ defamatory statements against third persons (see e.g. Rivera v. National R.R. Passenger Corp., 331 F.3d 1074, 1080 (9th Cir. 2003), and cases cited therein, (opinion amended on other grounds, 340 F.3d 767 (9th Cir. 2003)), the Board gives no guidance on how employers can protect themselves from such liabilities.

Each state has its own judicially prescribed factors to determine whether an employee’s statements or conduct fall within the scope of his employment. Those factors tend to be similar across the states, and generally include: (1) whether the employee’s acts fell within the discretion and control of the employer; (2) whether the employee acted under the express or implied authority of the employer; (3) whether the employee’s acts were in furtherance of the employer’s interests; (4) whether the employee’s acts were in the discharge of duty to the employer; (5) whether the acts were in execution of the employer’s orders or part of the work assigned by the employer, and (6) whether the employer condoned the statements or acts in question. See, e.g., Perks v. Town of Huntington, 251 F. Supp. 2d 1143, 1166 (2003) (applying New York law). Clearly, there is no respondeat superior liability for torts committed for personal motives, completely unrelated to the employer’s business.  Id. at 1166-67.

  1. Review the Handbook.

Since employers may be liable for their employees’ defamatory statements against individuals, why should it be unlawful for employers to prohibit such statements? While employers may insist that they have the right to prohibit their employees from posting defamatory statements against third parties in social media so that they can protect themselves from liability, the reality is that defending against NLRB unfair labor practice complaints is expensive.

Employers are well-advised to review the social media policies in their handbooks for any language that forbids (or could be interpreted to forbid) employees from making critical remarks against the employer and/or third parties. Modifications in the language of said policies in order to accommodate the NLRB concerns regarding the interpretation that employees could give them, may resolve the dilemma. Similarly, exculpatory language could also strengthen the employer’s position when confronted by NLRB investigations. Well-drafted savings clauses or disclaimers that make clear that the prohibition does not cover protected activity, would hopefully provide some measure of protection against NLRB litigation.