On January 11, 2024, an administrative law judge for the NLRB issued an opinion holding that the employment agreement used by a major mortgage lender for all of its approximately 6,000 employees violates the National Labor Relations Act (NLRA). The mortgage lender’s standard employment contract included provisions that: 1) restricted disclosure of confidential information; 2) governed the use and return of company property, information, and communications; and 3) required that certain disputes be resolved through arbitration. Many of these provisions are common in employment agreements between lenders and their employees. Nevertheless, the ALJ found that parts of these provisions violated the NLRA because they had a reasonable tendency to interfere with, restrain, or coerce an employee contemplating engaging in activity protected by the statute.

The ALJ found most of the company’s employment agreement terms overbroad. For example, the company’s definition of Proprietary and Confidential Information could be read to implicate terms and conditions of employment that are protected by Section 7 of the NLRA, such as nonpublic salary information, disputes between the company and its employees regarding pay and other terms and conditions of employment, and unfair labor practice allegations. In addition, the company’s definition of Company Financial Information could lead employees to believe that they could not discuss compensation information with other employees or a labor organization, which would be a violation of their Section 7 rights.

Notably, the judge also took issue with the agreement’s mandatory arbitration clause, finding it violated the NRLA because it could be interpreted to restrict an employee’s ability to report activity or file a charge with the NLRB. Although the employment agreement contained a carveout to allow employees to report violations to government agencies (including the NLRB), the judge found the disclaimer to be insufficient, since it was limited to an employee’s ability to “report good faith suspected violations” but did not also address an employee’s right to file charges or pursue unfair labor practices with the NLRB. 

The company was ordered to, among other things, cease enforcement of those provisions and distribute a revised employment agreements minus the unlawful provisions.

Putting it into Practice: This is a noteworthy decision and one that will likely be appealed. Nevertheless, companies who use similar provisions in their employment agreements should continue to monitor the case and be prepared to revise their employment contracts where appropriate. 

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