Hunton Retail Law Resource

On May 5, 2025, an Administrative Law Judge (“ALJ”) for the National Labor Relations Board (“NLRB” or the “Board”) ruled that retailer Costco Wholesale Corp. (“Costco”) violated the National Labor Relations Act (“NLRA” or the “Act”) when it asked employees involved in an internal investigation regarding sexual harassment allegations to sign a confidentiality agreement prohibiting them from discussing details concerning the investigation. The ALJ’s decision highlights considerations employers ought to take into account when balancing their interests in maintaining the integrity of internal investigations and complying with the NLRA.

A female employee at Costco’s Winston-Salem, North Carolina location submitted an internal complaint in August 2022, accusing a male coworker of sexual harassment. The employee spoke with several of the store’s managers about her complaint, one of whom presented the employee with a copy of Costco’s Acknowledgement of Confidentiality for Investigations form (the “Acknowledgment”) to sign. The Acknowledgment included a provision stating that the employee agreed “to maintain the confidentiality regarding this ongoing investigation.” The Acknowledgment also contained a provision requiring the employee to represent that she did not record any part of the investigation interview, as well as a provision stating that any violation of the terms of the Acknowledgment by the employee “may result in disciplinary action up to and including termination.”

Costco investigated the employee’s complaints in the following weeks and presented each employee interviewed with an identical copy of the Acknowledgment to sign. Costco concluded its investigation in March 2023, at which time a Costco Vice President sent the employee who submitted the complaint a letter advising her of the results of the investigation, including that the employee accused of harassment was no longer employed, and requesting that the employee treat the information in the letter as confidential.

The General Counsel for the NLRB alleged that the provisions in the Acknowledgment requiring the employees to maintain confidentiality of the investigation and refrain from recording any part of the investigation interviews, as well as the Costco Vice President’s confidentiality request in his March 2023 letter, violated Section 8(a)(1) of the NLRA by interfering with, restraining, and/or coercing employees in the exercise of their rights under Section 7 of the Act. The ALJ agreed with the General Counsel, holding in a May 5, 2025 decision that the complained-of provisions in the Acknowledgment were overly broad and that the Costco Vice President’s instructions in his letter impermissibly prevented the employee from disclosing or discussing matters affecting her and/or other employees’ terms and conditions of employment, both in violation of the Act.

The ALJ applied the Board’s Stericycle standard to the confidentiality provision in the Acknowledgment. Under the Stericycle standard, there is no presumption that an employer’s interest in maintaining the confidentiality of its internal investigations outweigh the impact a policy or work rule may have on employees’ exercise of Section 7 rights. Rather, the General Counsel must “prove that a challenged rule has a reasonable tendency to chill employees from exercising their Section 7 rights.” If the General Counsel carries this burden, the rule is presumptively unlawful, and the employer may only avoid a finding that it violated the act if it shows that the rule “advances a legitimate and substantial business interest and that the employer is unable to advance that interest with a more narrowly tailored rule.”

Applying the Stericycle standard, the ALJ concluded that the confidentiality provision in the Acknowledgment had a reasonable tendency to chill employees in the exercise of their Section 7 rights, highlighting that the Acknowledgment contained a blanket prohibition regarding employee communications about the ongoing investigation and warned employees of disciplinary consequences for failing to comply with the confidentiality restrictions. The ALJ also rejected Costco’s argument that the confidentiality provision was necessary to protect the integrity of its investigation, reasoning that its terms were (1) unlawfully overbroad because they required the employees to maintain confidentiality regarding information beyond the scope of what they learned or provided to Costco during the investigation process, and (2) not appropriately limited in time, as they could reasonably be interpreted as extending confidentiality restrictions beyond the conclusion of the investigation.

The ALJ similarly held that the Vice President’s instructions in his March 2023 letter violated the Act because they required the employee who submitted the harassment complaint to keep information about the investigation confidential after its conclusion. Further, the ALJ explained that the no-recording provision of the Acknowledgement violated the Act because it was broad enough to prohibit not only recording of the investigation interviews, but also any other conversations between employees and management, subject to the threat of discipline.

This decision adds to the recent scrutiny of employers’ confidentiality practices and raises additional considerations employers must balance in their efforts to protect the integrity of internal investigations while complying with federal labor law. Employers should examine their practices regarding employee obligations in connection with internal investigations to determine whether they are appropriate and reasonable in scope and time.

Employers should also continue monitoring for developments to Board law on this topic, as it is not yet clear how the Board’s approach to employers’ confidentiality practices will shift under the new administration. Though the Board currently applies the Stericycle standard to determine the legality of workplace rules, the new administration will likely overturn the Biden-era Stericycle decision, which was issued in 2023, and revert to the more employer-friendly Boeing standard that was established in 2017, during the first Trump Administration. 

Under Boeing, the Board assesses whether work rules are lawful to maintain by analyzing the nature and extent of the rule’s potential impact on employees’ rights and the employer’s legitimate business justifications for the rule. Based on this analysis, the Board uses the Boeing standard to place rules in one of three categories—Category 1, 2, or 3—depending on whether they are always lawful to maintain, require case-by-case analysis, or are always unlawful to maintain. Unlike under Stericycle, the Board does not presume that a work rule is unlawful if the General Counsel proves that the rule has a reasonable tendency to chill employees from exercising their Section 7 rights when applying the Boeing standard. Employers favor the Boeing standard because it provides them with predictability and certainty when drafting work rules and gives greater weight to employers’ interests in maintaining workplace order through those rules.

While the Board’s reinstatement of the Boeing standard would be a welcome change for employers, it would not eliminate the concerns raised by the Costco decision entirely. Regardless of the standard in place governing the legality of work rules, employers will need to carefully consider how to appropriately balance promoting legitimate confidentiality interests and employees’ rights under the NLRA in order to avoid infringing upon those rights.