Year-end Alerts to Employers – Part 4: Confidentiality Rules Under Fire – Be Warned!

This is the fourth installment of a series of year-end alerts to employers.

Part 1: OSHA Reporting Rules Effective December 1, 2016

Part 2: Paycheck Transparency Rules Effective January 1, 2017

Part 3: Paid Sick Leave for Federal Contractors Effective January 1, 2017

One area of intense interest to the Obama Administration has been to challenge the use of confidentiality provisions in employee handbooks as well as in employment agreements of all kinds.

For a number of years, the NLRB has found confidentiality policies that prohibit employees from discussing wage information or other terms and conditions of employment to be unlawful. These attacks have included challenges to policies designed to limit comments made on social media websites, as well as policies that prohibit employees from sharing salary and pay information. The basis for these attacks has been under Section 7 of the National Labor Relations Act, which allows for collective and concerted action by employees, even when there is no union in a workplace.

In a stark departure, on October 20, 2016, the U.S. Department of Justice and the Federal Trade Commission issued new antitrust Guidance specifically targeted at the HR community and others involved in hiring decisions. The DOJ/FTC Guidance expressly threatens criminal prosecution against companies as well as individuals where wage information is shared in a way that could adversely influence competitive wages, or if “no-poaching” agreements are made among competitors.

The thrust of this Guidance is that the Department of Justice does not believe that employers should share specific wage information in industry settings because it might allow for collusion among competitors to limit or hold down compensation in that industry. The Guidance specifically targets HR professionals but also applies to any employee who shares sensitive wage information in a public forum. In effect, this new DOJ/FTC Guidance warns companies against sharing hiring information such as wages and benefits, particularly if that information is going to be communicated to other companies that may be competing to hire similar employees.

The desire to maintain a competitive advantage is what led many employers to develop the confidentiality policies found in many employee handbooks. However, the NLRB and the OFCCP have ruled these gag rules are unlawful. It is unclear how the new Trump Administration will deal with this issue, but for now it presents an issue that must be taken seriously.

One solution may be to have different policies regarding protecting compensation information: one for supervisors and another for non-supervisors. The NLRA does not apply to “supervisors,” and most hiring managers and HR professionals should be found to be “supervisors.”. Supervisors can be lawfully prohibited from sharing wage information, particularly if the information could wind up in the hands of competitors.[1] Adopting this kind of rule can certainly help address the issues being raised by this new DOJ/FTC Guidance. This approach will not completely insulate a company from potential liability. If a lower-level HR employee (not a supervisor) with access to compensation information shares that information with a competitor or publicly, it might allow for price fixing to occur. For these individuals who are non-supervisors, having a clear policy that prohibits the disclosure of wage and benefit information sharing where there is a potential for a competitive employer to gain access to the information may be enough to provide a measure of protection and still avoid liability under the NLRA.

Beyond the provisions regarding the sharing of wage information, this new DOJ/FTC Guidance also focuses specifically on prohibiting “no-poaching agreements” between competitors where they agree not to hire employees of the other company. This new Guidance is consistent with the legal actions that DOJ has been pursuing against Apple and others in the Silicon Valley in recent years, as well as private lawsuits filed.[2]

The Guidance is very clear that “DOJ will criminally investigate allegations that employers have agreed among themselves or not to solicit or hire each other’s employees. Further, if that investigation uncovers a “no poaching agreement,” DOJ will have the discretion to bring felony criminal charges against both the individuals and the companies involved. Even in the absence of a no-poaching agreement, if DOJ develops “evidence of periodic exchange of current wage information in the industry with two employers [this] could establish an antitrust violation because, for example, the data exchange has decreased or is likely to decrease compensation.”

The Guidance does recognize that there can be legitimate no-hire agreements with business partners or with potential merger partners or even with employees as part of a severance agreement so long as they are reasonably necessary. No-poaching agreements that are the targets of antitrust enforcement are not typically made when a business is pursuing legitimate business interests. As a result, no-hire agreements generally should be incorporated into broader agreements so that the legitimate business purpose and need for the provision is clear. Likewise, like any other restrictive covenant, they need to be targeted and tailored.

In the Q&A section of the Guidance, there is a question as to whether an HR organization interested in determining industry trends can distribute a survey asking companies within that industry for current and future wages. The DOJ’s response indicates that soliciting or responding to such a survey could be unlawful and cautions members to avoid “discussing specific compensation policies or particular compensation levels” with members who work for competitors. It is not uncommon for HR professionals to regularly share information regarding salaries and other recruitment and retention strategies as part of a local, regional network. This is one of the main benefits of belonging to that type of networking situation, and this Guidance now puts that type of information sharing in question.

In a Fact Sheet that has since been removed from the website, the Obama Administration called on the Congress and State Legislatures to take up action to limit the legality of non-compete agreements. It recommended that non-competes be prohibited with employees who earn salaries below a certain wage level and that they be banned from occupations that promote public health and safety or from workers who are “unlikely to possess trade secrets” as well as from workers who are laid off or terminated without cause. It is unclear whether the Trump Administration will have this same approach, but for now, employers must weigh the situation carefully and evaluate their agreements and practices.

Businesses that have questions regarding these new rules or other employment obligations of federal contractors or employers in general should contact a member of Gentry Locke’s Employment Law team.


[1]   This approach will not work for government contractors. As of April 8, 2014, President Obama signed Executive Order 13655 which specifically protects employees of federal contractors from retaliation and discrimination if the employee discusses or discloses his/her compensation or the compensation paid to others. This new rule, which took effect January 11, 2016, applies to supervisors, but contains limits on those who work in HR functions.

[2]   There is a class action antitrust lawsuit pending against Duke and the University of North Carolina which alleges the schools and others agreed not to hire medical school faculty in an effort to suppress wages. Sieman v. Duke University, C. No. 1:15-cv-462 (N.D.N.C. June 2015).

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