During the first Obama administration, the National Labor Relations Board (NLRB) became the major nemesis for union and nonunion employers alike. With Congress stalemated, the administration was largely shut out from passing new worker-friendly laws. With the exception of the Lilly Ledbetter Fair Pay Act, Congress added no significant new labor and employment laws to the books during Obama’s first term. This frustrated unions, which had hoped a Democratic administration would propel the Employee Free Choice Act (EFCA) and other pro-union legislation.

So attention turned to the agencies, especially the NLRB, where the president appointed an activist acting general counsel and pro-union board members. The board proposed union election rules that incorporated the goals of the EFCA by speeding up the election process and a regulation requiring posting of a notice in all workplaces alerting workers to their rights under the National Labor Relations Act. The acting GC took an active interest in curtailing employer control of employees’ use of social media. And he stirred up a hornet’s nest by threatening to force Boeing to move production from a new plant in the right-to-work state of South Carolina to the state of Washington, where most of its workers are unionized—a case that later settled, but not without incurring lasting wrath from the business community and legislators.

“The board was pushing the envelope in a variety of ways that were very disconcerting to employers,” says Harold Coxson, an Ogletree Deakins shareholder.

Now Noel Canning v. NLRB, a case that seems destined for Supreme Court review, could have major implications for past decisions, the future of the NLRB, and for employers in both union and nonunion workplaces. On the following pages, InsideCounsel looks at a labor board in limbo and the case that will decide both its future and the validity of its recent past.

Setting the stage for a constitutional showdown, the Obama administration on April 25 urged the Supreme Court to rule in Noel Canning that presidents have broad authority to make certain appointments without Senate approval. If the nine justices agree to hear the dispute over the so-called recess appointments President Obama made to the NLRB last year, it will be one of the biggest issues before the court in its next term.

In the meantime, the agency charged with enforcing labor-management rules is in a state of limbo, with important proposed rule changes that the employment community adamantly opposes left hanging. While the board continues to function, any significant actions are certain to be challenged on appeal.

“Two rulemakings and a number of other decisions that caused such angst in the business community are deferred or delayed, and we will have to wait and see what happens with Noel Canning,” Coxson says.

The impasse started in January when the D.C. Circuit ruled that three recess appointments—appointments presidents often make during congressional recesses when the Senate is blocking a confirmation—were invalid. It found that Obama acted in violation of the Constitution in seating Sharon Block and Richard Griffin, who continue to sit on the NLRB, along with Terence Flynn, who has left the board.

The appeals court agreed with Noel Canning, the bottling company plaintiff, in finding in a 3-0 vote that the president did not have the authority to make the NLRB appointments because the Senate was not technically in recess at the time. By a vote of 2-1, the appeals court also ruled that recess appointments can only be made if the vacancy being filled has opened up during the recess.

In addition to limiting presidential power, the ruling meant that the five-member NLRB did not have the required quorum to make decisions, casting doubt on its actions and rulings since Obama made the recess appointments in January 2012. The ruling “threatens a significant disruption of the federal government’s operations,” the government said in filing the petition for certiorari.

Additionally, if the Noel Canning decision stands, it is possible that all NLRB decisions starting Aug. 27, 2011, will be invalidated. On that date, the terms of Chairman Wilma Liebman and Member Peter Schaumber expired, leaving three members on the labor board: Mark Gaston Pearce, Brian Hayes and Craig Becker, another Obama recess appointee who has since left the board. If, under the appeals court’s reasoning in Noel Canning, Becker’s recess appointment was also unconstitutional, the board has been acting without the necessary quorum since Aug. 27, 2011. Thus, all decisions from that date on—including the quickie election rule and such important decisions as D.R. Horton, Inc., which limited an employer’s ability to restrict employee joint, class or collective actions—could be thrown out. An appeal of D.R. Horton is pending in the 5th Circuit, and Horton’s counsel has cited Noel Canning in challenging the validity of Becker’s recess appointment and therefore the board’s decision.

Noel Canning is the specter that is above anything and everything that is going on at the board,” says Philip Rosen, a Jackson Lewis partner.

The next step is a response to the certiorari petition from the plaintiff, which was pending at press time. Gary Lofland, Noel Canning’s Seattle attorney, told Reuters in April that the company would encourage the court to take the case. “We believe that it’s important that the court resolve this issue because it provides a better certainty to the business community,” he said.

Most observers believe the importance of the constitutional issue of presidential power to make recess appointments will compel the court to take the case.


New Nominees

Meanwhile, the five-seat NLRB is operating with only three members, all of whom are Democrats: Chairman Pearce, Block and Griffin. On April 9, President Obama took steps to fill the two empty seats by appointing Republicans Harry Johnson and Philip Miscimarra. Both Johnson, a partner at Arent Fox in Los Angeles, and Miscimarra, a partner at Morgan, Lewis & Bockius in Chicago, represent management in labor and employment matters and have strong support from the employer community. Along with Johnson and Miscimarra, Obama also re-nominated Pearce, whose current appointment ends in August 2013, to serve another term. 

“If the president is successful in bringing the board up to five members, it would be a three-to-two pro-labor board,” Rosen says. “The new board could review and reaffirm the decisions made by the prior board, such as notice posting and the election rule [thus removing the cloud they are under because of Noel Canning]. That would, for the next four years, put the president’s agenda in terms of pro-labor issues back in high gear. If those five members are confirmed by the Senate, the president wins.”

But some see dim prospects for confirmation of the president’s proposed board.

“Obviously the chairman [Pearce] has been a polarizing figure because he has pressed significant rulemaking decisions, including fast elections,” says Michael Lotito, a Littler Mendelson shareholder. “There are a number of individuals who will have issues with him.” And the impediments to confirming a new board don’t stop there.

Earlier, Obama renominated Block and Griffin shortly after the Noel Canning decision invalidated their appointments. Their renominations are currently pending before the Senate. Observers see the prospect of the Senate confirming a package of all five nominees—Miscimarra, Johnson, Pearce, Block and Griffin—as unlikely given Republican anger over some of the current member’s past actions.

“As long as the five-member package of NLRB nominees includes the two discredited recess appointees Griffin and Block, the Senate is unlikely to confirm the package,” Coxson says. “Congressional Republicans insisted that they resign following the D.C. Circuit’s decision in Noel Canning, but they have continued in office deciding cases.

“It is possible, perhaps, that the Senate might consider a four-member package, absent Griffin and Block, of two Republicans and two Democrats, which would allow the board to decide routine cases but not issue precedent-reversing decisions,” he adds. “But unions and the White House are unlikely to accept that alternative.”

Steven Bernstein, a Fisher & Phillips partner, points out that if the administration withdraws the renominations of Griffin and Block, it would essentially be undermining its own argument in the Noel Canning appeal that they were legitimate appointees in 2012. 

“It’s fair to assume that the Republicans will continue to fight the candidacies of Block and Griffin,” he says. “As long as that continues, we will see deadlock that at some point will have to break, or the agency will be paralyzed because it is reluctant to tackle weighty issues until this gets resolved. That hurts both sides [labor and business] by creating uncertainties about a law that is not user-friendly anyway.”

House Action

While the Senate has the power to approve or deny appointments, the Republican-controlled House found its own way to express discontent with the labor board. On April 11, the House narrowly passed the Preventing Greater Uncertainty in Labor-Management Relations Act by a vote of 219-209, largely along party lines. This bill would limit NLRB activities until the Senate confirms at least three members, the recess appointees’ terms expire or the Supreme Court rules on the legitimacy of the recess appointments. Specifically, it would prevent the board from implementing, administering or enforcing any decision, rule or other action that required a quorum vote on or after Jan. 4, 2012—the date of the recess appointments. If additional board members are validly confirmed, they would be required to review all of the actions of the prior board.

According to news reports, during floor debate, Rep. John Kline, R-Minn., chairman of the House Committee on Education and the Workforce, said, “Never has [the board] faced this level of confusion and uncertainty. … Roughly 600 board decisions are constitutionally suspect, and that number continues to grow.”

Speaking in opposition to the bill, Rep. Rosa DeLauro, D-Conn., called the bill “a transparent attempt to simply shut down the NLRB.” Many others who spoke against the measure urged the Senate to simply take a vote on the five board nominees.

Despite the House’s approval, the bill is unlikely to advance in the Democrat-controlled Senate. Even if the Senate were to approve the measure, President Obama has reportedly threatened to veto it.


Cloud of Uncertainty

The House vote is indicative of the frustration felt by many lawmakers, in-house counsel and labor and employment attorneys over the uncertainty that exists in labor law today, Lotito says. Hundreds of board decisions—some dealing with emerging social media and employee handbook policies that impact nonunion employees—are in jeopardy of being invalidated.

“The labor board functions under a cloud of uncertainty that only the Supreme Court can remove,” Lotito says. “One of the basic elements of justice is having a quick response with certainty behind it and making sure people know what the rules of the road are. From a national labor perspective, we have the exact opposite. We don’t know what the rules are.”

Lotito notes that the uncertainty extends beyond actions the NLRB takes in Washington, D.C. That’s because the board with recess appointees itself appointed several regional directors, who make decisions at the regional level. The authority of those regional directors is now in question because people who may not have had the power to appoint them did so.

“The vast majority of the issues our clients deal with day to day are resolved by conciliation at the regional level,” Bernstein says. Now he says both unions and management have an incentive to proceed to litigation because an adverse regional decision that the board then acts on in Washington, D.C., might well be thrown out on appeal.

‘The longer this drags out, the longer employers and unions will play the process out rather than settling,” he says. 

Rosen says it is important for clients facing an unfair labor practices charge to reserve the right to appeal based on the recess appointment issue. “We have sent letters in response to an unfair labor practices complaint indicating as a defense that the NLRB may not have the authority to make a decision. We reserve that right while we continue to litigate the case,” he says.

Several veteran labor attorneys said they are often at a loss when advising their in-house clients on issues impacted by the NLRB such as social media policy because of these uncertainties. “Right now it is extremely difficult to advise clients,” Lotito says. “Everything is with the caveat that we don’t know if they have the authority to do anything.”

For these attorneys and the in-house counsel who rely on their opinions, this is an unprecedented and difficult situation.

“Most people in my position are scratching their heads and trying to do the best we can,” says David Ritter, a Barnes & Thornburg partner. “It’s frustrating as a lawyer trying to advise his clients on how they should act lawfully. It’s hard to give advice in an uncertain situation.”