In the recent case of S. Freeman & Sons, Inc., the National Labor Relations Board confronted the question of “whether an employer can require an employee to keep confidential the terms of a settlement agreement in exchange for reinstatement.”  364 NLRB No. 82 (Aug. 25, 2016).  The Board answered in the affirmative, reversing an administrative law judge’s finding that such an agreement violated Section 8(a)(1) of the National Labor Relations Act.

The employer in the case is engaged in the distribution of paper products and restaurant supplies and employs 25 drivers.  The case involves a number of suspensions, terminations, and reinstatements of one of those drivers, who was also a shop steward for the facility over a short period of time.  In October 2013 the driver was suspended for refusing to obey a supervisor’s order.  The driver filed a grievance regarding his suspension.  Prior to a scheduled meeting on the grievance, however, the driver was involved in an accident while driving a company truck.  The driver received a citation for following too closely, and the truck he was driving suffered damages exceeding $2,000.

The company’s vice president sent the driver a letter informing him of a pending investigation of the accident and referencing the collective bargaining agreement’s provision allowing for termination in cases where damage to a company vehicle is greater than $2,000.  At the meeting to discuss the driver’s suspension grievance, the vice president allegedly offered to refrain from terminating the driver’s employment for the truck accident if the union agreed to withdraw several unrelated grievances.  The Union refused and the driver was terminated.

After dialogue between the driver, the union, and the company’s president, the president agreed to reinstate the driver and provide him with gift cards as compensation for his lost income.  Upon the driver’s return to work, the president offered to convert his discipline to a suspension for time served if he signed an agreement not to discuss the terms of his reinstatement.  The driver signed the agreement, which stated that the terms of the agreement would remain confidential and any disclosure of the agreement could lead to discipline.

After more disciplinary actions against the driver, the union filed an unfair labor practice charge, challenging those actions and claiming that the confidentiality provision in the settlement agreement violated the driver’s Section 7 rights.  The administrative law judge agreed, finding that the confidentiality agreement sought to preclude the driver from discussing his discipline with his coworkers and was, therefore, facially unlawful.

A majority of the Board reversed the administrative law judge’s decision with regard to the confidentiality agreement.  The majority reiterated that “an employer may condition a settlement on an employee’s waiver of Section 7 rights if the waiver is narrowly tailored to the facts giving rise to the settlement and the employee receives some benefit in return for the waiver.”  In this case, the confidentiality provision was narrowly tailored because it was limited to discussing only the terms of the driver’s discipline for his car accident.  Additionally, the majority noted that the union had still retained the ability to share the terms of the agreement with employees.  Finally, the driver had received a benefit in the form of his reinstatement for a terminable offense.  Thus, the majority found the agreement did not violate Section 8(a)(1).

One member of the Board filed a dissent regarding the confidentiality provision.  The dissent argued that the confidentiality agreement interfered with the Section 7 rights of the driver because it prevented him from discussing his workplace discipline with his co-workers and prohibited working together to address disciplinary issues.  The dissent found that there was no purpose for the nondisclosure requirement other than to interfere with Section 7 rights. 

Overall, the Board’s decision in this case is helpful for employers because it legitimizes narrowly crafted confidentiality provisions in settlement agreements.  Employers should be careful, however, in crafting the provisions so that they are very narrowly tailored, such as limiting them to the circumstances leading to the agreement, as the employer did in this case.  Employers should also ensure that the employee receives a benefit from the agreement.