Compensation is Confidential? Think Twice . . .

On April 8, 2014, President Obama signed an Executive Order, aimed at discouraging employers from adopting workplace policies that discourage employees from freely discussing their compensation with each other.[1] Specifically, the Executive Order prohibits federal contract employers from taking adverse actions (e.g., discipline, termination) against employees/job applicants who discuss their compensation with co-workers/potential co-workers. While the Executive Order—which only applies to federal contract employers—has limited application, the media’s recent discourse on this issue suggests that most people assume employers are otherwise free to prohibit employees from discussing their compensation. This is a myth.

Section 7 of the National Labor Relations Act (“NLRA”) provides all employees the right to “engage in concerted activities,” including the right to discuss their terms and conditions of employment (e.g., compensation) with each other.[2] This right applies to all employees, regardless of whether they are unionized. Under Section 8(a)(1) of the NLRA, an employer engages in an unfair labor practice when it denies or limits the Section 7 rights of employees.[3] Based upon these two provisions, the National Labor Relations Board (“NLRB”) has repeatedly held that employer promulgated policies, which discourage/prohibit employees from discussing their pay and benefits violate the NLRA.

Notably, In re Taylor Made Transp. Servs., Inc., 358 N.L.R.B. 53 (June 7, 2012) serves as a cautionary reminder of the wide array of penalties that may be imposed on employers found to have implemented “gag” policies on compensation dialogue. Here, the employer was found to have violated the NLRA by suspending, and later terminating, an employee for disclosing her wage rate (which was deemed confidential by the employer) to her co-workers. Following this finding, the NLRB imposed the following penalties on the employer: (1) reinstatement of the employee; (2) payment of lost earnings and benefits; (3) removal of information related to the discipline/discharge from employee’s personnel file; (4) rescission of all company policies that precluded employees from discussing compensation; and (5) posting of a Notice, drafted by the NLRB, for 60 days “in conspicuous places” throughout the employer’s facility, which advised of the NLRB’s findings.

Accordingly, while President Obama’s recent Executive Order is not “groundbreaking,” it serves as a reminder that employers would be wise to reexamine and eliminate any policies that could be construed as prohibiting employees from discussing compensation.

[1] Exec. Order No. – -, — C.F.R. — (Apr. 8, 2014), available at http://www.whitehouse.gov/the-press-office/2014/04/08/executive-order-non-retaliation-disclosure-compensation-information.

[2] 29 U.S.C. § 157.

[3] Id. at § 158(a)(1).