Non-Disparagement and Confidentiality Provisions at Center of Restrictive Covenant Enforcement Litigation Were Unlawful: NLRB | Practical Law

Non-Disparagement and Confidentiality Provisions at Center of Restrictive Covenant Enforcement Litigation Were Unlawful: NLRB | Practical Law

The National Labor Relations Board (NLRB) recently held in Quicken Loans, Inc. that employment agreements for nonunion mortgage bankers contained unlawfully overbroad confidentiality and non-disparagement provisions that employees would reasonably understand to restrict activity protected by Section 7 of the National Labor Relations Act (NLRA).   

Non-Disparagement and Confidentiality Provisions at Center of Restrictive Covenant Enforcement Litigation Were Unlawful: NLRB

by Practical Law Labor & Employment
Law stated as of 04 Nov 2014 • USA (National/Federal)
The National Labor Relations Board (NLRB) recently held in Quicken Loans, Inc. that employment agreements for nonunion mortgage bankers contained unlawfully overbroad confidentiality and non-disparagement provisions that employees would reasonably understand to restrict activity protected by Section 7 of the National Labor Relations Act (NLRA).
On June 21, 2013, the NLRB issued an opinion in Quicken Loans, Inc., affirming an NLRB administrative law judge's (ALJ) conclusions that employment agreements for nonunion mortgage bankers contained unlawfully overbroad confidentiality and non-disparagement provisions that these employees would reasonably understand to restrict Section 7 activity. The panel (Board) heading the NLRB's judicial functions ordered that the employer, which had sued several mortgage specialists to enforce post-employment restrictive covenants in the employment agreements, rescind the non-disparagement provision entirely and portions of the confidentiality provision from all of the employment agreements with current and former mortgage specialists.

Background

Lydia Garza was employed with Quicken Loans, Inc. (Quicken) from 2006 to 2011 as a mortgage banker. Garza, like all mortgage bankers employed by Quicken, signed a Mortgage Banker Employment Agreement (MBEA), which imposed restrictions on employees during and after employment, such as limits on their rights to:
  • Work for Quicken's competitors.
  • Solicit Quicken's customers or their co-workers.
  • Use or disclose Quicken's confidential or proprietary information.
  • Disparage Quicken.
The confidentiality provision defined "Proprietary/Confidential Information" to include, among other things, "non-public information relating to or regarding the Company's . . . personnel." Within the same provision, the agreement defined "personnel information" to include:
all personnel lists, rosters, personal information of co-workers, managers, executives and officers; handbooks, personnel files, personnel information such as home phone numbers, cell phone numbers, addresses, and email addresses
The non-disparagement provision required that employees agree not to:
publicly criticize, ridicule, disparage or defame the Company or its products, services, policies, directors, officers, shareholders, or employees, with or through any written or oral statement or image (including, but not limited to, any statements made via websites, blogs, postings to the internet, or emails and whether or not they are made anonymously or through the use of a pseudonym).
Shortly after Garza resigned from the company on October 18, 2011, Quicken sued her and five other former employees for violating the noncompete provisions of the MBEA. Garza responded by filing an unfair labor practice (ULP) charge with the NLRB, alleging that the MBEA was unlawfully overbroad because it infringed on her Section 7 rights. The NLRB issued a ULP complaint alleging that the confidentiality and non-disparagement provisions were unlawfully overbroad.
On January 8, 2013, an NLRB ALJ ruled against Quicken:
  • Finding that the confidentiality provision in the MBEA would substantially hinder employees in the exercise of Section 7 rights, such as discussing, with fellow employees or unions:
    • terms and conditions of employment; and
    • other employees' contact information.
  • Finding that the non-disparagement provision in the MBEA could chill employees' Section 7 right to criticize their employer and supervisors.
  • Holding that Quicken must rescind the non-disparagement and confidentiality provisions in their entirety from the MBEAs for current and former employees.
Quicken appealed by filing exceptions to the decision with the Board.

Outcome

The Board affirmed the ALJ's findings, but modified her recommended order. The Board held the confidentiality and non-disparagement provisions of the MBEA violated the NLRA for the following reasons, respectively:
  • To comply with the confidentiality rule, employees would be substantially curtailed from discussing wages or benefits with fellow employees, violating their right to engage in concerted activity.
  • Employees are afforded the right to criticize their employer, within reason, to gain support from co-workers or the public on an employment matter.
The Board also:
  • Affirmed that Quicken must rescind entirely the non-disparagement provision.
  • Found that it was inappropriate to compel Quicken to rescind the entire confidentiality provision, especially since the ALJ did not analyze the validity under the NLRA of requiring employees to keep information other than "personnel" information confidential.
  • Decided that Quicken should be required to rescind the confidentiality provision only to the extent it infringed on rights of employees to discuss or disclose:
    • non-public company information about "personnel"; and
    • more specifically, all of the types of information identified in the MBEA's definition of "Personnel Information".

Practical Implications

In light of the Board's decision in Quicken Loans, Inc. and other recent decisions where the Board scrutinized confidentiality and non-disparagement rules, employers, whether unionized or not, should consider:
  • Reviewing their employment agreements and policies for terms that could be understood to restrict employees' Section 7 rights.
  • Revising overtly overbroad policies to exclude prohibitions that touch on Section 7 activities.
  • Revise ambiguous policies to include:
Employers should also recognize that their efforts to enforce restrictive covenants against former employees may be hampered by ULP proceedings if the agreements containing those covenants were not tailored to exclude restrictions on Section 7 rights.

Court Documents

UPDATE

The Board acknowledged that this decision was invalidated by Noel Canning (see Legal Update, Supreme Court Holds 2012 Recess Appointments to the NLRB Were Invalid, Effectively Invalidates 20-Months of NLRB Decisions). It vacated the decision and reissued a decision adopting the analysis and conclusions of the vacated decision. (361 N.L.R.B. slip op. 94 (Nov. 3, 2014).)

UPDATE

The US Court of Appeals for the District of Columbia Circuit (DC Circuit) granted the Board's cross-petition for enforcement of its order. The DC Circuit held that the Board properly determined that the employer's confidentiality rule and non-disparagement rule both directly impinged on right of employees to self-organize and bargain collectively (Quicken Loans, Inc. v. Nat'l Labor Relations Bd., (D.C. Cir. July 29, 2016).)