Noel Canning v. NLRB: The Decision, Its Potential Impact, and the Future of the National Labor Relations Board

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On Friday, January 25, 2013, we informed you that the federal circuit court of appeals in Washington D.C. had struck down President Obama's "recess appointments" of three National Labor Relations Board (NLRB or Board) members as unconstitutional. This Alert further explores the court's decision in Noel Canning v. NLRB, No. 12-1115, slip. op. (D.C. Cir. Jan. 25, 2013) and its potential far-reaching implications for federal labor law and the NLRB.

BACKGROUND

The NLRB is composed of five members and cannot issue decisions or take other action in the absence of a valid three-member quorum. On January 3, 2012, Board Member Craig Becker's term expired leaving the Board unable to act with only two confirmed members -- Chairman Pearce and Member Hayes. In order to avert an effective shut-down of the Board, President Obama invoked the Recess Appointments Clause of Article II, Section 2 of the Constitution on January 4, 2012, and appointed Sharon Block, Richard Griffin, and Terence Flynn as new Board members.

On February 8, 2012, a three-member panel of the Board consisting of Members Hayes, Flynn, and Block issued an order finding that Noel Canning -- a Pepsi bottler from Washington State -- violated various sections of the National Labor Relations Act. Noel Canning petitioned the federal court of appeals for the D.C. Circuit for review. On appeal, Noel Canning argued that the Board's February 8, 2012, order was invalid and unenforceable because the Board did not have a valid quorum of three members at the time the order was issued because the recess appointments of Members Block, Griffin, and Flynn were unconstitutional. On January 25, 2013, a unanimous panel of the D.C. Circuit concurred.

THE D.C. CIRCUIT'S DECISION

Writing for the three-member panel, Chief Judge David Sentelle found President Obama's "recess appointments" constitutionally invalid for two reasons. First, the President's appointments to the Board were not made during "the Recess" as that term is used in the Recess Appointments Clause of the Constitution. Second, the vacancies filled by the President's "recess appointments" did not "happen" during "the Recess" of the Senate as required under the same constitutional provision.

Generally, officers of the United States -- such as NLRB Board members -- are nominated by the President and then appointed with the advice and consent of the Senate. U.S. Const. art. II, § 2, cl. 2. The Constitution's Recess Appointments Clause, however, provides an exception to this general rule and allows the President to "fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session." Id. art. II, § 2, cl. 3.

On January 4, 2012, the date of President Obama's recess appointments to the NLRB, the Senate was operating pursuant to a unanimous consent agreement. Under the agreement, the Senate met in pro forma sessions every third business day from December 20, 2011, through January 23, 2012. Under the 20th Amendment to the Constitution, however, "Congress must assemble at least once in every year, and such meeting shall begin at noon on the 3d day of January . . . ." U.S. Const. amend. XX, § 2. Accordingly, during the January 3 pro forma session, the Senate acted and officially convened the second session of the 112th Congress in order to fulfill its constitutional duty.

Considering the Senate's action on January 3, 2012, the issue decided by the D.C. Circuit was whether the recess appointments made by President Obama the next day took place during "the Recess of the Senate" as required by the Recess Appointments Clause. The President's recess appointments, the court of appeals held, did not take place during "the Recess of the Senate" because "the Recess," as used in the Recess Appointments Clause, is limited to intersession recesses: that is, the time period between one session of the Senate and the next when the Senate is unavailable to receive and act upon nominations from the President. President Obama's recess appointments to the Board took place not during an intersession recess, but while the Senate was holding pro forma sessions and after the second session of the 112th Congress was convened on January 3, 2012. In reaching its conclusion, the court of appeals found support in the text, structure, and history of the Constitution.

Though the court's holding on the first constitutional issue was sufficient to dispose of the case, and the court acknowledged as much, the court considered an alternative basis for its conclusion that President Obama's recess appointments were unconstitutional. Analyzing the meaning of "happen" as it relates to when a vacancy that may be filled pursuant to the Recess Appointments Clause must arise, the court, by a 2-1 vote, held that the clause only applies to vacancies that actually arise during the Senate's recess, not vacancies that happen to exist at the time the recess begins. If upheld, this holding will severely limit the President's power as all vacancies filled under the Recess Appointments Clause must actually come into existence during the Senate's intersession break -- a break that may or may not actually occur during any given two-year Congress.

FURTHER REVIEW

The NLRB will assuredly seek review of the D.C. Circuit's decision. To do so, the NLRB has two choices. It may petition the D.C. Circuit for an en banc hearing before the full court, or it may immediately petition the Supreme Court of the United States for certiorari. Given that challenges to the President's recess appointments remain pending in three other appellate courts, it is likely that the issue will eventually reach the Supreme Court regardless of whether the NLRB seeks an en banc hearing in the D.C. Circuit.

IMMEDIATE LABOR RELATIONS IMPLICATIONS

The D.C. Circuit's ruling in Noel Canning has several immediate implications for labor relations. The most important, and significant, of which is the potential invalidation of all decisions issued by the NLRB since President Obama's recess appointments on January 4, 2012. In New Process Steel v. NLRB, 130 S. Ct. 2635 (2010), the Supreme Court held that the NLRB could not legally render decisions or otherwise act without a quorum of at least three members. If the Supreme Court agrees with the D.C. Circuit that the President's recess appointments were constitutionally infirm, the 200 or more decisions issued by the Board from January 4, 2012, to present will be invalid.

The group of Board decisions that may be nullified under New Process Steel includes several high-profile, controversial decisions concerning social media, employer confidentiality rules, off-duty employee access to employer property, dues check-offs, and employee discipline. Specific, high-profile cases that may be impacted include the following:

Social Media

Costco Wholesale Corp., 358 NLRB No. 106 (2012) (holding that employer's electronic communication policy that prohibited electronic postings that "damage the Company, defame any individual or damage any person's reputation" unlawfully restricted employees' protected rights).

Karl Knauz Motors, Inc., 358 NLRB No. 164 (2012) (holding that employer's handbook rule prohibiting "disrespectful" language or "any other language which injures the image or reputation of the Dealership" was unlawful).

Employer Confidentiality Rules

Costco Wholesale Corp., 358 NLRB No. 106 (2012) (adopting the Administrative Law Judge's ruling that the employer's rule that prohibited employee discussion of "private matters of members and other employees" was unlawfully overbroad).

Banner Health System, 358 NLRB No. 93 (2012) (holding that the employer violated the NLRA by asking an employee who was the subject of an internal investigation to refrain from discussing the matter while the employer conducted the investigation).

Off-Duty Employee Access Rules

Sodexo America LLC, 358 NLRB No. 79 (2012) (holding that employer's off-duty access rule was invalid because the rule granted the employer "unfettered discretion" to determine which employees could access the facility while off duty).

Marriott Int'l, Inc., 359 NLRB No. 8 (2012) (holding that the employer's policy of prohibiting off-duty employees from accessing the employer's property without managerial approval was unlawful).

Dues Check-Offs

WKYC-TV, Gannett Co., 359 NLRB No. 30 (2012) (holding that an employer's duty to collect union dues from employees pursuant to a dues check-off provision continues even after the expiration of the collective bargaining agreement).

Employee Discipline

Alan Ritchey, Inc., 359 NLRB No. 40 (2012) (holding that unionized employers must give the union notice and an opportunity to bargain before imposing discretionary discipline involving demotions, suspensions, and terminations where the applicable collective bargaining agreement does not establish a grievance-arbitration process).

Not only will all decisions issued by the Board from January 4, 2012, to present be invalidated if the D.C. Circuit's Noel Canning decision stands, but any Board decision issued from now until the Supreme Court makes a final determination on the validity of President Obama's recess appointments will also be in jeopardy. Despite the D.C. Circuit's ruling in Noel Canning, the Board has vowed to continue with business as usual. Thus, until this issue is decided by the Supreme Court, any decision issued by the Board will be questionable.

Additionally, if the Noel Canning decision stands, it is possible that all NLRB decisions from August 27, 2011, through January 3, 2012, will also be invalidated. On August 27, 2011, the terms of Chairman Liebman and Member Schaumber expired leaving three members of the NLRB: Members Pearce, Hayes, and Becker. Member Becker, however, like Members Block, Griffin, and Flynn, was a "recess appointment" not made during an intersession recess. If, under the reasoning of Noel Canning, Member Becker's recess appointment was unconstitutional, the Board has been acting without the necessary quorum since August 27, 2011. Thus, all decisions from that date on -- including such important decisions as D.R. Horton, Inc., 357 NLRB No. 184 (2012) (limiting an employer's ability to restrict employees' ability to file joint, class, or collective actions) and St. John's Health Center, 357 NLRB No. 170 (2011) (limiting an employer's ability to restrict off-duty employee access to employer property) -- could be nullified under the Supreme Court's decision in New Process Steel. Indeed, the attacks on these decisions have already begun as appellate counsel for D.R. Horton has submitted a supplemental letter to the Fifth Circuit citing Noel Canning and challenging the validity of Member Becker's recess appointment and, by extension, the legality of the Board's decision.

Further, because Noel Canning is a constitutionally-rooted decision, if upheld, the decision may theoretically nullify all prior Board decisions issued during any period when the Board had a three-member quorum only by virtue of non-intersession recess appointments. Thus, taking the application of Noel Canning to its logical extreme, and given the notorious politicization of NLRB appointments, it is conceivable that many historic NLRB precedents will come under attack. While possible, the invalidation of historic Board precedents is not a certainty as the Supreme Court could choose to limit Noel Canning's impact on older decisions through the application of equitable considerations.

Finally, Noel Canning could provide additional rationale to invalidate the Board's "Quickie Election" Rule which provides for Board-conducted representation elections in as few as 10 days after a representation petition is filed. The Board's final rule was issued on December 21, 2012, with one of the two votes in favor coming from Member Becker. If Member Becker was unconstitutionally appointed, however, the Board was engaging in the rule making process without the required three-member quorum.

The Board's election rule has already been attacked in the federal courts. One court has held the rule invalid because no quorum existed at the time of the final vote due to Member Hayes's refusal to "show up" for the vote. Chamber of Commerce of the United States v. NLRB, No. 11-2262 (JEB), slip. op. (D.D.C. May 14, 2012). Noel Canning supplements this analysis because, irrespective of any issue concerning Member Hayes, no quorum could have existed if Member Becker was not lawfully appointed. Recognizing the impact Noel Canning may have on the validity of the Board's election rule, the Chamber of Commerce has already presented the above argument to the D.C. Circuit -- the same court that decided Noel Canning -- which is reviewing the Chamber's case on appeal.

THE FUTURE OF THE NATIONAL LABOR RELATIONS BOARD

In the wake of Noel Canning, neither the White House nor the NLRB has given any indication that the posts of Members Block and Griffin are at risk. To the contrary, Chairman Pearce has publically stated the Board will "continue to perform [its] statutory duties and issue decisions." With the expiration of Member Hayes's term on December 16, 2012, the Board is currently down to three members, two of which are recess appointments. If the Supreme Court upholds the decision in Noel Canning, or similarly decides the issue in related litigation, the Board will have only one appropriately appointed member -- Chairman Pearce. Such a situation will essentially force President Obama to present the Senate with a bi-partisan, four-nomination package to quickly populate the Board and avoid a backlog of cases that cannot be decided. Thus, Noel Canning's reach may well shape the composition of the NLRB for years to come.

With the ability to wipe out nearly a year-and-a-half of recent Board decisions and other historical Board precedents if upheld by the Supreme Court, and to influence the Board's composition for the foreseeable future, Noel Canning has the potential to make an unprecedented impact on modern labor law. Whether the full effect of the decision will be realized, however, depends on the Supreme Court and will not be known for some time. In the meantime, employers should work closely with their labor counsel to ensure appropriate labor relations and litigation strategies are being pursued while federal labor law exists in its present state of unrest.

If you have any questions about this Alert or how it may impact your business, please contact any member of BakerHostetler's Labor Relations Team.