A temp agency could not fire an employee for violating a confidentiality provision that barred him from disclosing to any “other parties” the terms of his employment, the 1st U.S. Circuit Court of Appeals has decided.

The National Labor Relations Board had found the provision overbroad and unenforceable on the ground that it could reasonably be construed by employees as prohibiting discussions of their compensation with union representatives, which is protected activity under the National Labor Relations Act.

The temp agency argued that the mere broad wording of the provision, without evidence of actual chilling of union activity, was insufficient to violate the NLRA.

But the 1st Circuit disagreed and upheld the board’s order requiring the employee’s reinstatement.

“We cannot say the Board’s interpretation was unreasonable,” wrote Chief Judge Sandra L. Lynch. “The Board supportably relied on its own precedents to determine that any discharge pursuant to an unlawful rule is itself unlawful.”

The court also rejected the employer’s contention that the NLRB’s decision in the case, handed down by a two-member panel, violated the quorum requirement in §3(b) of the NLRA.
The 20-page decision is Northeastern Land Services, Ltd. v. National Labor Relations Board.

Long-range implications

NLRB Chairman Wilma B. Liebman said in a prepared statement that she was “gratified” by the 1st Circuit’s ruling and was “hopeful that the other courts considering the issue will come to the same conclusion.”

But Richard D. Wayne, of Hinckley, Allen & Snyder in Boston, who represented the
employer, called the decision a “disappointing” one with potentially broad significance.
“This was a small employer who drafted a rule based on business considerations and never took into consideration unions or concerted activity when they drafted it,” said Wayne.

“Nonetheless, a person who did not engage in concerted or union activity is finding himself protected by the NLRA.”

As a result, said Wayne, the ruling puts not only other employers’ confidentiality at risk but all sorts of other rules that an employer might use to maintain order or discipline in its workplace.

“The decision could have some very significant, long-range negative implications,” he said.
John M. Becker, a labor lawyer with Sandulli Grace in Boston, dismissed such concerns.

“The court itself discusses the possibility of a more narrowly fashioned confidentiality agreement that reaches legitimate goals the employer might have without being overbroad,” he said.

Becker also complimented the ruling for recognizing that anti-union activity can be carried out in ways that are not immediately apparent from the wording of documents like the one in this case.

“[The decision recognizes] that as employers become more sophisticated in ways to keep unions out of their shops, the board has to be able to recognize that and protect the rights of employees to organize, even in situations like this one where it’s not obvious that there’s a union issue,” he said.

Breach of confidentiality

Northeastern Land Services (NLS), a temporary agency in Rhode Island that supplies workers to the natural gas and telecom industries, hired Jamison Dupuy on two different occasions to acquire land rights for NLS clients.

For the second job, which began in July 2001, NLS placed Dupuy on a project in Massachusetts for NLS client El Paso Energy.

When NLS hired Dupuy, it required him to sign a temporary employment contract. The agreement contained a provision requiring Dupuy to keep the terms of the agreement, including compensation, confidential between him and NLS. The provision stated that disclosure of the terms to other parties could be grounds for termination.

As the job proceeded, Dupuy complained to NLS about delays in receiving his paycheck.

Ultimately, he asked if he could work for El Paso through a different employment agency because NLS was not paying him on time. That request was denied.

A further issue arose when Dupuy, who had arranged to receive a $15-per-day reimbursement for work-related use of his personal computer, learned he would be receiving only $12 a day in reimbursements.

NLS attributed this to overhead costs associated with a change in its tax treatment of the benefit.

Dupuy subsequently e-mailed an El Paso executive saying he wanted El Paso to offset NLS’s additional costs and that he would not use his computer for the job until the matter was resolved. He later e-mailed everyone on the El Paso project that his computer was offline until further notice, but he did not copy anyone at NLS.

A week later, NLS’s chief operating officer told Dupuy that since NLS could not make him happy, it was best that he be terminated. The COO later testified that Dupuy had violated the confidentiality agreement when he contacted El Paso directly about his paycheck and reimbursement situation.

An administrative law judge ruled in NLS’s favor, finding that its legitimate business justification for the clause outweighed any restriction on employees’ NLRA rights.
An NLRB panel reversed the judge’s decision, determining that the confidentiality provision as written was unlawful because employees could reasonably interpret its prohibition on disclosure of employment terms to “other parties” to prohibit activity, such as discussions with union representatives, that is protected by §7 of the NLRA.

Consequently, the panel found that Dupuy’s termination was unlawful, holding that disciplinary action pursuant to an unlawfully overbroad rule violates the NLRA. The panel also voided the provision and ordered that Dupuy be made whole “for any loss of earnings and other benefits suffered as a result of the unlawful action taken against him.”

Overbroad prohibition

On appeal, the 1st Circuit rejected NLS’s argument that the confidentiality provision was legal because it did not, in fact, prohibit employees from discussing terms of employment among themselves, and because it was not enforced in the face of union activity.

The court noted under board precedent, even if an employer’s rule does not explicitly restrict protected §7 activity, it is still unlawful if employees could reasonably construe the rule to do so.

“The plain language of [NLS’s] confidentiality provision provides: ‘Disclosure of these terms [of employment] to other parties may constitute grounds for dismissal,’” Lynch said. “The Board’s finding that this language could be fairly read to extend to disclosure of terms of employment to union representatives is supportable.”

The court was also unconvinced by NLS’s argument that the NLRB should have found that legitimate business reasons — namely its desire to keep employment terms confidential while bidding for contracts — justified the provision.

“Nothing [in prior caselaw] compelled the Board to apply a balancing test here,” said Lynch.
“While the Board could have chosen … to engage in a balancing analysis, we owe deference to its decision not to do so.”

The judge also pointed out that, “as a practical matter, a more narrowly drafted provision would be sufficient to accomplish NLS’s goal in maintaining confidentiality in bidding for contracts.”

The court further rejected NLS’s argument that it should be able to avoid liability by demonstrating that it would have discharged Dupuy for being “insubordinate and disruptive” even in the absence of any confidentiality provision.

“Under the Board’s precedent, where the Board finds an employer rule is invalid, discharge for violating that rule is invalid,” said Lynch.

Finally, the 1st Circuit denied NLS’s challenge on grounds that the two-person panel’s decision violated the NLRB’s quorum requirement.

In this case, the NLRB had — pursuant to §3(b) — lawfully delegated its powers to a three-person panel, which was reduced to two when a vacancy occurred.

“[T]he statute states that ‘[a] vacancy in the Board shall not impair the right of the remaining members to exercise all of the powers of the Board,’” Lynch wrote. “The Board’s delegation of its institutional power to a panel that ultimately consisted of a two-member quorum because of a vacancy was lawful under the plain text of section 3(b),” she concluded.”

Eric T. Berkman, formerly a reporter for Massachusetts Lawyers Weekly, is a freelance writer.