Checks & balances

On Jan. 25, 2013, the D.C. Circuit Court of Appeals held in Noel Canning v. National Labor Relations Board that President Obama's appointments of Sharon Block, Terence Flynn and Richard Griffin to the National Labor Relations Board (NLRB) Jan. 4, 2012, violated the Constitution's Recess Appointments Clause and were, therefore, invalid.

Under NLRB precedent, the board must have at least three sitting members to take any enforcement action. With three of the five board members' appointments deemed void after the Noel Canning ruling, the board does not have the three-member quorum it needs to officially function, stripping it of the authority to issue decisions and engage in rulemaking. As a result, the D.C. Circuit Court of Appeals' holding may invalidate all decisions and orders the board has issued since Jan. 4, 2012—a consequence that would significantly affect employer policies and practices, many of which have been tweaked or overhauled in response to NLRB's groundbreaking stance on long-settled labor issues during the past year.

The decision

The dispute underlying the Noel Canning decision arose out of a union's claim that a company, Noel Canning, a bottler and distributor of Pepsi-Cola products, had unlawfully refused to write and execute a collective bargaining agreement embodying the terms agreed upon by the parties during negotiations. According to the union, such refusal violated provisions of the National Labor Relations Act that prohibit employers from bargaining in bad faith and interfering with employees' rights to engage in collective bargaining activity. The administrative law judge and NLRB agreed with the union's claims. Noel Canning appealed the decision.

From a purely statutory standpoint, the court agreed with the union, finding there was substantial evidence to support the administrative law judge's and the board's rulings that Noel Canning had violated the act. However, after analyzing the facts from a constitutional point of view, the court agreed with the employer that on the date the board affirmed the ruling, NLRB lacked the three-member quorum needed to conduct business, rendering the decision invalid.

To arrive at this conclusion, the court looked closely at the circumstances surrounding the NLRB recess appointments and the Constitution. It was uncontroverted that on Feb. 8, 2012, NLRB's three-member panel that affirmed the administrative law judge's findings consisted of one member confirmed by the Senate and two members President Obama had appointed Jan. 4, 2012, pursuant to the Recess Appointments Clause. The two recess-appointed members filled seats that had become vacant when previous board members' terms had expired.

At the time of the recess appointments, the second session of the Senate had begun though the Senate was operating pursuant to a unanimous consent agreement that provided it would meet every three days in pro forma sessions during which no business would be conducted. It was between two of these pro forma sessions the president made the recess appointments. Noel Canning's attorneys argued the time between the pro forma sessions was not a recess as defined by the Constitution and, as a result, the appointments were invalid.

To resolve the issue, the court turned to the text of the Recess Appointments Clause, which states: "The President shall have Power 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."

Ultimately, the court's holding turned on an extremely meticulous and decidedly conservative interpretation of two key phrases in the clause: the term "the Recess" and the words "may happen."

The court decided the term "the Recess" refers to the period between sessions of the Senate when the Senate is by definition not in session and, therefore, unavailable to receive and act upon nominations from the president and not recesses or breaks in the Senate's activities when it is otherwise in a continuing session. The court found such an interpretation most closely approximates the original meaning of the term as intended by the framers of the Constitution, pointing out that for the first 150 years after the Constitution was ratified, no recess appointments were made while the Senate was still in session. Furthermore, it found such an interpretation was consistent with the purpose of the recess appointment power—to serve as a temporary measure of appointment when the Senate was unable to provide advice and consent to the president.

The court also adopted Noel Canning's attorneys' interpretation of the phrase "may happen" and found the term refers to board vacancies that arise or become available during a Senate intersession recess rather than vacancies that merely happen to exist when a recess begins. Accepting an alternative construction of the phrase, the court pointed out, would obliterate the primary mode of making appointments outlined in the Constitution.

Because the three members appointed to NLRB in January 2012 were appointed during a continuing session of the Senate and filled slots that had became available months before the break between the pro forma sessions, the court held the members had been invalidly appointed. Consequently, the three-member board that decided the Noel Canning case only had one validly appointed member and did not meet the three-member quorum required for it to operate. As a result, the board's order in the Noel Canning case was held to be of no force and effect.

The decision's effects

The most profound effect of the D.C. Circuit Court of Appeals' Noel Canning ruling is the potential invalidation of all board decisions since Jan. 4, 2012, and perhaps decisions issued even before then. Such a consequence conceivably could overturn a host of high-profile decisions issued by NLRB during the past year that reversed long-standing precedent in favor of organized labor. Some major decisions that could be invalidated as a result of the ruling involve the following:

• Social media: The Costco Wholesale Corp. and Karl Knauz Motors decisions found employer policies prohibiting statements by employees that damage a company's reputation are unlawful because they could reasonably be construed to prohibit employees' rights to engage in protected concerted activity.
• Confidentiality: The Banner Health Systems and Hyundai American Shipping Agency cases held an employer's need to maintain confidentiality during internal investigations of misconduct did not outweigh employees' rights to discuss such investigations and imposed a case-by-case "substantial justification" requirement on such confidentiality policies.
• Employee discipline: The Alan Ritchey decision ruled recently unionized employers must give the union notice and opportunity to bargain before imposing discretionary discipline involving demotions, suspensions and terminations when the applicable collective bargaining agreement does not establish a grievance arbitration process or when no collective bargaining agreement has been reached between the parties.
• Employee witness statements: Uprooting 30 years of NLRB precedent, in the American Baptist case the board ruled employers must supply statements to unions that employees have given to management regarding co-worker misconduct.
• Dues check-off provisions: The board held in the WKYC-TV decision that an employer's duty to collect union dues from employees pursuant to a dues check-off provision in a collective bargaining agreement continues even after the expiration of the contract, reversing a rule to the contrary that had been in place for more than 50 years.

The Noel Canning decision also may nullify recent efforts by NLRB to promulgate rules that would require employers to post notices in the workplace informing employees of their union organizing rights and provide for an expedited representation election process.

In the wake of the D.C. Circuit Court of Appeals' decision, the board's ability to hear and issue decisions is temporarily disabled until a new, validly appointed board is put in place. So though NLRB's administrative law judges still can conduct hearings and make valid rulings, all decisions appealed to the board will be suspended until a new board can rule on them.

In the meantime, the D.C. Circuit Court of Appeals' ruling in the Noel Canning case already is being cited by employers as grounds to delay enforcement orders issued by the now-defunct board though such efforts have not proved particularly successful.

There are several cases pending in other circuit courts regarding the constitutionality of the president's recess appointments, which could come out either in favor of or against the D.C. Circuit Court of Appeals' position on the matter. The ambiguity surrounding the effect and substance of the constitutional questions raised by the Noel Canning decision means the Supreme Court almost certainly will have to review and decide these issues.

Best practices

Bear in mind NLRB's position on the Noel Canning case and its effect on board activities is "business as usual."

Although the board's decision-making functions have been placed on hold, NLRB's other branches, such as administrative law judges and representation election divisions, continue to operate according to usual protocol.

Therefore, the safest course of action is to continue to be cognizant of and adhere to recent and longstanding NLRB precedent when operating your business, including when making decisions that may or may not be overturned as a result of the Noel Canning ruling. Although there is uncertainty as to the legitimacy of some of these decisions, unfair labor practice actions still can be brought and heard by NLRB's administrative law judges. Of course, the decision of whether to adhere to these challenged NLRB rulings should be made on a case-by-case basis, taking into account your business's risk tolerance.

Also, be mindful of the possibility that the decisions currently in doubt may be reconsidered by a validly appointed pro-union NLRB in the future—with the same results. We advise you not to discount any past or future guidance issued by NLRB and to work closely with counsel to develop the appropriate labor relations practices and policies needed to successfully comply with NLRB's challenged rulings during this period of unrest.

Jason C. Kim is a partner and Judith Kong and Gray I. Mateo-Harris are associates in the Labor & Employment practice group of Chicago-based law firm Neal, Gerber & Eisenberg LLP.

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