Really? Generic Conflict of Interest Rule Invalidated by NLRB

Remington Lodging & Hospitality, the Respondent, maintained a handbook rule providing: “I understand that conflict of interest with the hotel or company is not permitted.” The Respondent cited that rule in disciplinary notices that it issued to nine employees who presented a boycott petition to its General Manager in November 2009, asserting that the employees had violated that policy. The Union representing the employees filed an unfair labor practice charge against the Respondent and the case proceeded to the NLRB.

The case originally was decided in April 2013 when the Board issued a Decision and Order, finding against the Respondent. The Respondent and the Charging Party each filed a petition for review in the United States Court of Appeals for the Ninth Circuit. At the time of the Decision and Order, the composition of the Board included two persons whose appointments to the Board had been challenged and held as constitutionally infirm by the Supreme Court. Thereafter, the Board issued an order setting aside the Decision and Order and retained the case on its docket for further action as appropriate. It then delegated the case to the three-member panel.

In the now-vacated Decision and Order, a Board majority adopted the judge’s findings that the Respondent unlawfully maintained five handbook rules solely on the basis that the Respondent applied those five rules to restrict employees’ Section 7 activities. The new panel, consisting of Chairman Pearce and Members Hirozawa and Miscimarra, agreed, but also held that four of those five handbook rules, including the conflict of interest rule, were  unlawful on their face.

With respect to the conflict of interest rule, the majority (Chairman Pearce and Member Hirozawa) found that employees would reasonably interpret the rule prohibiting them from having a “conflict of interest” with the Respondent as encompassing activities protected by the Act. Particularly when viewed in the context of the Respondent’s other unlawfully overbroad rules, “employees would reasonably fear that the rule prohibits any conduct the Respondent may consider to be detrimental to its image or reputation or to present a ‘conflict’ with its interests, such as informational picketing, strikes, or other economic pressure.” Moreover, they reasoned that to the extent the rule is ambiguous, the ambiguity “must be construed against the employer as the promulgator of the rule.”

Member Miscimarra concurred in part and dissented in part. In the absence of any exception to the judge’s finding that the nine employees were engaged in Section 7 activity when they presented the petition, he agreed with the majority that the Respondent violated Section 8(a)(1) of the Act when it applied the rule against conflicts of interest to restrict employees’ Section 7 activity.

However, he disagreed with the majority’s additional finding that the rule against conflicts of interest was unlawful on its face. “Employers have a legitimate interest in preventing employees from maintaining a conflict of interest, whether they compete directly against the employer, exploit sensitive employer information for personal gain, or have a fiduciary interest that runs counter to the employer’s enterprise.” Therefore, he wrote “I do not agree with my colleagues’ conclusion that employees would reasonably understand the conflict-of-interest rule as one that extends to employees’ efforts to unionize or improve their terms or conditions of employment.” In his view, “the rule, on its face, does not reasonably suggest that efforts to unionize or improve terms and conditions of employment are prohibited.” He also noted that the challenged rule was immediately adjacent to a rule in Respondent’s handbook stating: “I understand that it is against company policy to have an economic, social or family relationship with someone that I supervise or who supervises me and I agree to report such relationships.” He claimed that this context “bolsters my conclusion that the Respondent’s rule merely conveys a prohibition on truly disabling conflicts and not a restriction on activities protected by the Act.”

It is unclear whether this rule would have been  invalidated if there were not several other rules in the handbook that were held facially unlawful, although there is really nothing of substance to suggest that it would not have been. In light of this decision, employers should review their conflict of interest rules to determine if they are too general and would potentially be considered invalid under the NLRA. A conflict of interest rule that gives specific lawful examples of the type of conduct that is prohibited should pass muster. Likewise, a disclaimer that nothing in the rule prohibits or restricts conduct protected by the NLRA might be considered lawful.