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On September 7, 2012, the National Labor Relations Board (NLRB) issued an opinion in Costco Wholesale Corp. v. NLRB. The case is an important one for all employers (regardless of whether their employees are union or non-union). It deals with the NLRB’s continuing focus on what it believes to be over-reaching employment policies that violate Section 7 and/or 8 of the National Labor Relations Act (NLRA). In fact, in the last 12 months, the NLRB’s Acting General Counsel has issued three reports on the issue.

Section 8 of the NLRA states that it is an “unfair labor practice” for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.” Section 7 of the NLRA provides all employees (union and non-union) with the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

In Costco, the United Food and Commercial Workers Union (“Union”) began a campaign to organize the meat department at one of Costco’s warehouse locations and filed a petition to represent the employees. According to the Union, during the campaign Costco allegedly unlawfully interrogated its employees by making various statements about their involvement with the Union. The Union brought an unfair labor practice action against Costco on this basis and also challenged certain employment policies that Costco had prohibiting employees from engaging in certain conduct.

What is most disturbing about this case is that the policies at issue are not uncommon and are reasonably aimed at protecting the employer’s and other employees’ confidential information and their reputations. Specifically, Costco’s handbook included policies that prohibited employees from posting or distributing materials on company property, discussing other employees’ private matters (such as leaves of absence and personal health information), and sharing or transmitting employees’ “sensitive information” (e.g. financial information, social security numbers, telephone numbers, emails, and addresses). Costco also prohibited employees from electronically posting statements that “damage the Company, defame any individual or damage any person’s reputation, or violate the policies outlined in the Costco Employee Agreement” and prohibited employees from leaving the employer’s premises without permission. The policies provided that employees who violated the rules could be subject to discipline, up to and including termination.

Nevertheless, the NLRB determined that the policies limiting the posting and sharing of information violated the NLRA and the policy regarding the rule prohibiting statements that damage the Company or any person’s reputation, could be construed by employees as “…prohibit[ing] Section 7 activity.” Therefore, according to the NLRB, an employer’s general prohibition of statements that could damage or defame the company or others could be viewed by the NLRB as violations of employees’ right to “concerted activity.”

How then does an employer draft effective policies in way to reduce the risk of a NLRA violation?

In Costco, the NLRB disapproved of a “broad” prohibition against sharing confidential information or making statements that damage the Company or any person’s reputation, and found that such prohibitions “clearly” encompass concerted communications under the NLRA. The NLRB emphasized that “there is nothing in [Costco’s] rules that even arguably suggests that protected communications are excluded from the broad parameters of the rules.” Also according to the NLRB, the employer’s policy “does not present accompanying language that would tend to restrict its application.”

Given these statements, it would appear that the NLRB expects for an employer’s policies that prohibit the sharing of confidential information or the making of statements that damage the Company or any person’s reputation, include language that clearly states that any protected concerted activities under the NLRA are excluded from such policies.

Recommendation: Based on the Costco decision and the apparent heightened scrutiny by the NLRB of the language of various employment policies, employers are advised to work with their employment counsel to analyze and update their employment policy manuals or handbooks appropriately.

The Ninth Circuit has referred the Peabody v. Time Warner Cable case to the California Supreme Court to answer this question.

Under the commissioned salesperson exemption, or the “inside sales exemption” in Wage Orders 4 and 7 (ONLY) an employee is exempt from overtime if his or her earnings: 1) exceed one and one-half times the minimum wage; and 2) more than half of the employee’s compensation represents commissions. Under California’s minimum hourly wage of $8.00, an inside sales commissioned employee must earn at least $12.00 per hour to qualify for the exemption.

Susan Peabody was employed by Time Warner Cable as an Account Executive in the Media Sales Department. She was a commissioned salesperson who sold advertising on Time Warner Cable’s various cable channels. She was paid a base annual salary of $20,000 per year and also earned commissions based on the revenue generated by advertising that aired every broadcast month. According to Time Warner Cable, a “broadcast month” lasted four or five weeks. Ms. Peabody worked approximately 45 hours per week and was paid on a biweekly basis.

Ms. Peabody filed a class action against Time Warner Cable claiming that she was entitled to overtime because she was not exempt under the “inside sales exemption.” According to Ms. Peabody, she received large monthly commissions in only about half of the pay periods, and therefore she did not earn at least 1 ½ times the minimum wage in the remaining pay periods, as required by the inside sales exemption.

Time Warner argued that Ms. Peabody’s earnings should be calculated based on the “broadcast month” (every four or five weeks), so that Ms. Peabody’s commissions covered the pay periods for which they were earned rather than the actual pay period in which the commissions were paid. Based on this calculation, Ms. Peabody was clearly paid enough each pay period to qualify for the inside sales exemption. Noting that there is no California authority on this issue, the Ninth Circuit referred the issue to the California Supreme Court for a ruling.

We will monitor the case and let readers know what the California Supreme Court decides.