It's actually illegal. Employees have the right to form unions and collective bargaining agreements and this is a fundamental principal of that right. Now, your employees probably did not have this intent when discussing each other's wages, but nonetheless, it is protected. I don't know the specifics of what would actually happen if you terminated someone for discussing their wages, but expect to pay full UI benefits.

On this topic, does it only become illegal if someone is actually disciplined or terminated for discussing their salary or other compensation with other employees? A confidentiality agreement was recently issued at our organization (12 employees)that requested employees not discuss their compensation, with the exception of when it was necessary to conduct business. The statement further indicated that corrective action up to termination, would be taken.

This is interesting, as I had a friend here in Minnesota that used to work at a place where they could get fired for talking to anyone other than thier leader about thier pay rates.

I think it is an unwritten rule that employees should not discuss pay with their co-worker, however I have seen it language in CBAs that explicity state union employees have the right to discuss their rate of pay.  For a unionized environment it is very common.  I have employees come to HR all the time saying "so and so is making more than me and I've been here longer," or "so and so got a 3% increase in December and I haven't." 

What I think will happen if you company issues a policy, is that it will lead existing employees to wonder what is going on, why is there a policy on an issue that is considered to be personal and how can my company tell me that I can disclose  personal information.   Some employees may think the company has something to hide (pay discrimination).  For the most part, I am assuming that most employees would rather not share such information with their co-workers and therefore the policy will only speak to a few.

How will you be able to prove that an employee disclosed such information.  The employee can deny it and claim that such information leaked from another source (HR, the manager, payroll) and therefore, the burden of proof will be on the organization to prove that Sue told John how much she made.

In California, employees have the legal right to discuss their OWN wages, regardless of any collective bargaining agreement.   However, absent any CBA, if the employer has a sufficient policy, they can be disciplined or terminated for discussing other people's (other than their own) wages.

Seek counsel's advice on what is legal in your state/province.

Personally, I prefer having openness in an organization and would advocate to have no restriction.  People who get upset over pay are going to be upset whether they can or can't talk about.  And employees generally do talk about it.  So instead of having the elephant in the middle of the room and nobody acknowledging it is there, point it out and deal with.   It's a gross analogy, but you can't eat an elephant in one bite!   It's big.  Cut it up into smaller portions and eat it up over a long period of time.   Seriously, determine a policy of openness, implement it and manage it and give it time to develop.  Don't whack people for being honest and even upset in the beginning of the openness era.   They will either adjust or leave, which is what they would do anyway.

The NLRB Blows the Lid Off Confidentiality Policies

Many employers may now be in violation of Section (8)(a)(1) of the National Labor Relations Act (NLRA) as the result of a newly released decision by the National Labor Relations Board (the Board).  

Most employers are aware that any rule prohibiting employees from discussing their own wages or terms and conditions of employment with co-workers violates Section 8(a)(1) of the NLRA, unless the employer has a legitimate and substantial business justification for the rule.  Historically, such violations have been found where employers explicitly instructed employees not to discuss these topics or disciplined them for so doing. 

Recently, however, the Board expanded the potential arena for these violations.  In Cintas Corp., 344 N.L.R.B. No. 118 (June 30, 2005), the Board held that a broadly stated generic corporate confidentiality policy violated Section 8(a)(1) because it “could reasonably be construed” to prohibit employees from discussing their wages or terms and conditions of employment.  Because broad confidentiality policies are so common, many employers will need to review and modify their longstanding confidentiality policies, even if they have never been applied to prohibit discussion