Costco’s Confidentiality Policy for Misconduct Investigations Ruled Unlawful

Businesses have confidentiality agreements in place to protect them, but sometimes they go too far and can actually be deemed illegal.

Costco’s internal confidentiality practices are facing scrutiny after a federal labor judge found that its approach to handling workplace misconduct investigations may infringe on employee rights.

In a recent decision, the National Labor Relations Board (NLRB) reviewed a case involving a Costco employee who reported sexual harassment through the company’s “Open Door” policy. The judge concluded that the mandatory confidentiality agreements required during such investigations could discourage employees from discussing legitimate concerns, including harassment.

The case stems from a 2022 complaint by a Costco employee who alleged that a coworker had sexually harassed her. As part of the internal investigation, the employee was asked to sign a confidentiality agreement barring her from speaking about the case with colleagues. She later received a letter confirming that the accused employee had been terminated, along with a request to maintain ongoing confidentiality.

Debate Over Employee Rights and Confidentiality

Costco defended its policy, arguing that confidentiality safeguards the integrity of investigations and encourages open communication by protecting participants from retaliation. The company’s attorney stated in NLRB filings that such policies are particularly important in a retail setting, where staff often work in close quarters. He emphasized that the rules were not intended to prevent discussions about working conditions or union activities.

However, the NLRB disagreed, asserting that the confidentiality agreement — separate from Costco’s general employee handbook — could mislead workers about their rights and suppress open dialogue about misconduct. In the employee’s case, testimony revealed that other employees had previously raised concerns about the same person, but felt constrained by the confidentiality requirement.

The board suggested that Costco could adopt a more balanced approach, one that preserves the integrity of investigations while still allowing employees to report repeated misconduct and support one another.

Implications for HR and Investigation Protocols

The judge ruled in favor of the NLRB, stating that Costco’s policy could reasonably lead employees to believe they were prohibited from speaking out, even when protected by law. He recommended that the company post a notice at the warehouse where the incident occurred to reaffirm workers’ rights.

The broader impact of this ruling is still unclear, as the NLRB has yet to determine whether similar confidentiality practices exist throughout Costco’s locations in the United States. The case is now set to go before the full NLRB board.

The ruling underscores the importance of balancing investigative confidentiality with employee rights under federal labor law.

Learn More About Non-Disclosure and Confidentiality Agreements

This decision adds to a growing national conversation about confidentiality in workplace investigations and its potential to clash with labor protections.

Companies need to follow the law when it comes to confidentiality agreements. Orlando non-disclosure & confidentiality agreement lawyer B.F. Godfrey from Godfrey Legal can help protect your legal interests. To schedule a consultation, fill out the online form or call (407) 890-0023.

Source:

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