In a controversial decision, the NLRB found that a conflict-of-interest policy in an employee handbook is unlawful on its face.  This ruling could deem many current conflict-of-interest policies unenforceable, creating harsh consequences for employers.

On June 18, 2015, the National Labor Relations Board held that an administrative law judge was correct in determining that a policy in the employee handbook that prohibited a “conflict of interest with the hotel or company” was facially unlawful.[1]  Chairman Pearce agreed that the policy, on its face, would have a chilling effect on the employees’ Section 7 rights.

The Sheraton Anchorage, under the new management of Remington Lodging & Hospitality, distributed a new handbook to employees that contained “Associate Rules and Regulations.”  The policy in question  provided that a “conflict of interest with the hotel or company is not permitted.”  During collective bargaining negotiations, Remington disciplined numerous employees who were engaged in Section 7 protected activity, including distributing flyers outside the entrances of the hotel.  Remington based the disciplinary action on multiple policies listed in the handbook, including the policy prohibiting conflicts of interest.

First, an administrative law judge determined that the policy was unlawful because it was applied to restrict the exercise of Section 7 rights.  He then determined that the policy could be reasonably interpreted by employees as prohibiting them from discussing among themselves and others the terms and conditions of their employment when it may conflict with the interest of the employer.  The judge held that the policy was “overly broad and ambiguous, and would serve to chill the Section 7 rights” of the employees.  Therefore, the policy is unlawful on its face.

The NLRB first reviewed the administrative law judge’s decision on April 24, 2013.  The panel determined that the policy against conflicts of interest was not unlawful on its face, but was unlawful only because it was applied to restrict the exercise of Section 7 rights.  This decision was vacated on the grounds that two panel members were appointed unconstitutionally.

On review, the NLRB affirmed the judge’s determination that the policy was unlawful on its face.  In a 2-1 decision, the NLRB agreed with the reasoning set forth in the judge’s opinion that the policy could be reasonably interpreted to restrict Section 7 protected rights.

One member did not agree that the policy was unlawful on its face.  Board Member Philip A. Miscimarra stated that employers have a legitimate interest in preventing employees from maintaining a conflict of interest.  Also, it is not reasonable to conclude that employees would interpret the policy against conflicts of interest as to prohibit efforts to improve the terms and conditions of their employment.  Therefore, the policy, on its face, does not restrict any Section 7 rights, he argued unsuccessfully.

All employers that have a policy against conflicts of interest should contact their attorney to determine how this ruling could affect them.  Conflict-of-interest policies must now  unambiguously permit employees to exercise their Section 7 rights, otherwise they can be declared unlawful and unenforceable.

[1] Remington Lodging & Hospitality, LLC, 2015 NLRB LEXIS 473, 362 NLRB No. 123, (June 18, 2015).