In the Wake of Canning - Turmoil at the NLRB Because of Recess Appointments

Last Friday, a unanimous panel of the Court of Appeals for the D.C. Circuit issued a decision in Noel Canning v. NLRB, holding that three of President Obama's recent "recess appointments" to the National Labor Relations Board (NLRB or Board) were unconstitutional. Canning effectively means that the Board has been acting without a legally required quorum since January 4, 2012. The decision thus threatens the validity of final NLRB decisions, and perhaps other agency orders, issued since that date. 

The Decision

The case arose based on a claim that the employer, Noel Canning, committed an unfair labor practice by refusing to execute a collective bargaining agreement with its union. An Administrative Law Judge (ALJ) ruled in favor of the union, and a three-member panel of the NLRB consisting of Board Members Brian Hayes, Sharon Block, and Terence F. Flynn affirmed the ALJ's ruling. The employer appealed the decision to the D.C. Circuit Court of Appeals.

On appeal, the employer argued, among other things, that the Board lacked the authority to issue a valid and binding decision. Specifically, the employer argued that the NLRB lacked a quorum, as three of the recent "recess appointments" to the Board were not appointed in a manner consistent with the "Recess Appointments Clause" of the U.S. Constitution. President Obama invoked this provision when he appointed three members to the NLRB January 4, 2012 to fill then-existing vacancies. At that time, the Senate was between formal sessions but was operating pursuant to a unanimous consent agreement, which provided that the Senate would meet in pro forma sessions every three business days from December 10, 2011 through January 23, 2012, and that "no business [would be] conducted" during those sessions.

The employer argued that President Obama's recess appointments were invalid because the Senate was not in recess at the time they were made. The Board argued that the President has the power to make appointments " during "intra-session" recesses or breaks in the Senate's business even when the Senate remains technically in session, as was the case on January 4, 2012.

The D.C. Circuit agreed with the employer. The Court found that the term "Recess" as used in the Constitution was intended to mean the single recess between Senate sessions, and not a "generic break" in Senate proceedings or multiple "recesses" of imprecise duration, as the Board appeared to argue.

Early Reactions

Canning has drawn predictable politically-based reactions. On Friday, The National Retail Federation hailed the decision as "a victory for every American employer." That same day, Darrell Issa, R-Calif., chairman of the House Committee on Oversight & Government Reform and outspoken critic of the current NLRB, called for the Board's two remaining recess appointees to step down:

Today's ruling will certainly cause other opinions unconstitutionally issued by the board to be invalidated. To avoid further damage to the economy, the NLRB must take the responsible course and cease issuing any further opinions until a constitutionally-sound quorum can be established," he said in a statement.

The NLRB promptly rejected that request. NLRB Chairman Mark Gaston Pearce issued the following statement shortly after the Court's decision was announced:

The Board respectfully disagrees with today's decision and believes that the President's position in the matter will ultimately be upheld. It should be noted that this order applies to only one specific case, Noel Canning, and that similar questions have been raised in more than a dozen cases pending in other courts of appeals.

In the meantime, the Board has important work to do. The parties who come to us seek and expect careful consideration and resolution of their cases, and for that reason, we will continue to perform our statutory duties and issue decisions. (Emphasis added).

The drama has continued this week. In an editorial published on Tuesday, The Wall Street Journal urged defunding of the NLRB, charactering this extension of the Board's longstanding non-acquiescence policy as "lawless behavior" and the "latest affront to the Constitution's system of checks and balances." On Wednesday, Sen. Roy Blount, R. Mo., proposed a bill that would preclude the Board from paying the salaries of Members Block and Griffin.

Next Steps in the Litigation

The Board may seek an en banc review of the Canning decision by the full D.C. Circuit. Or it may decide to appeal the case directly to the Supreme Court. The Canning decision appears to conflict with the Eleventh Circuit's decision in Evans v. Stephens, 387 F.3d 1220 (11th Cir. 2004), which upheld President George W. Bush's intra-session recess appointment of a federal judge.  

Practical Significance

At a policy level, this is an intolerable situation. The threat of a shutdown of operations at the NLRB, and/or the looming question of whether ongoing NLRB enforcement actions are justified under the Constitution does not serve employers, employees or labor unions. After all, the statute requires the Board to enforce the Act. One would think that the Supreme Court can resolve an issue of this importance, particularly given the apparent Circuit split created by Canning. Yet that solution is by no means certain, even in light of (and, indeed, perhaps precisely because of) the Court's 2010 decision in New Process Steel. In any event, further judicial action is certainly not imminent. 

The current situation may be even worse at the practical level. It is much more difficult than the consequences of New Process Steel which, after all, involved only unfair labor practice cases that had already been decided. Employers facing active NLRB cases face difficult choices, in part because of the complex relationship between and among the Board members, the General Counsel, and Regional Offices around the country. Because Section 9 of the NLRA gives only the Board the authority to certify the results of representation elections, there is substantial doubt as to whether the agency now has the authority to process pending representation cases to conclusion, whether filed by employers, employees or unions. Absent clarification, employers that are parties to active representation cases should carefully assess their specific circumstances, in light of their long-range business objectives, in deciding among available tactics. Similar difficult choices face employers in active unfair labor practice cases, particularly in "CA" cases filed against the employer. Canning suggests there is considerable doubt about the agency's authority to adjudicate pending unfair labor practice cases.  This affects  a wide range of procedural issues, ranging from subpoena enforcement, to scheduling of hearings, to briefing schedules in cases that have already been tried.  Newly-filed cases may present additional legal uncertainties.

It is important to note that Canning potentially affects all employers, not just those who are parties to active cases pending at the agency. There are dozens of cases decided by one or more of the recess appointees. Under New Process Steel, those decisions are likely null and void. Many of these decisions have significantly moved the law in ways that have required employers to revise their practices, procedures and policies in order to maintain compliance. Employers may wish to reconsider certain aspects of their compliance strategies in light of Canning.  

The logic of Canning also threatens the constitutionality of the President's appointment of Richard Cordray as the single administrator of the Consumer Financial Protection Board (CFPB), the regulatory entity created by the Dodd-Frank law that restructured certain sectors of the financial services industry. There are reports that some banks and other financial institutions are considering whether Canning gives them any additional options to address specific unpopular aspects of the CFPB regulatory scheme. Although the single administrator nature of CFPB is distinguishable from the NLRB's current status (there is no present suggestion that current actions taken by the Acting General Counsel are directly affected by Canning), specific steps that may be taken by entities subject to that regulatory scheme may provide additional guidance to employers with active cases at the NLRB. Under the rationale of Canning, the NLRB, like  the CFPB, has only one legally valid official.

We will continue to monitor this situation closely, and continue to advise our clients and friends of additional developments.