Supreme Court Boosted Chances of Successful Constitutional Challenges to NLRB

SpaceX’s constitutional challenges to the National Labor Relations Board (NLRB) got a boost from a recent U.S. Supreme Court decision. Earlier this year, SpaceX—a spacecraft manufacturer, defense contractor, and satellite communications company—earlier this year challenged the NLRB’s structure as unconstitutional because its administrative law judges (ALJs) and members can only be fired for cause.

While some management lawyers are predicting victory on the merits of the case for SpaceX, they also say it will be a long fight, so employers should continue to focus on proactively resolving problems in the workplace that might otherwise result in unionization.

Union election petitions have doubled since fiscal year (FY) 2021—up from 1,638 petitions in FY 2021 to 3,286 union election petitions from Oct. 1, 2023, to Sept. 30, 2024. This “signals that the historic, renewed enthusiasm we’ve seen around unions that started in 2021 is still in full swing,” said David Pryzbylski, an attorney with Barnes & Thornburg in Indianapolis. 

However, despite the rise in union petitions, the overall percentage of private-sector workers belonging to unions has remained at or around 6%—a historic low—for the last 10 years, Pryzbylski added. 

“This may be attributable to the fact [that] many union factories/sites have been shuttered in recent years as well as other factors. So, it’s not yet clear if the new petitions will more than offset labor’s other losses.”

Meanwhile, the constitutional challenges to the NLRB “are significant and could very well succeed,” said attorney Phillip Wilson, president of LRI Consulting Services Inc. in Broken Arrow, Okla.

There are three main arguments against the way the NLRB is currently structured, Wilson said. Two relate to the way the NLRB’s members and ALJs are appointed. The third relates to the type of damage awards the board is issuing.

After the Supreme Court’s decision in SEC v. Jarkesy, “it looks like the current setup of the NLRB adjudication process violates all three arguments,” Wilson said. 

The president must be able to fire NLRB ALJs and members whenever it wants, he noted.

“Both the NLRB members and ALJs currently have civil service protections like the ones deemed improper in the Jarkesy case,” Wilson said. 

In addition, after the NLRB’s decision in Thryv, the types of relief awarded in board decisions look more similar to damages that would ordinarily give the employer the right to a jury trial, he said. 

“Many observers, including me, think the 5th [U.S.] Circuit [Court of Appeals] is likely to follow the guidance of the Jarkesy case and find that the NLRA [National Labor Relations Act] is an improper delegation of executive authority to the agency, and that employers have a right to jury trials in at least some board cases,” Wilson stated.

Pryzbylski said that at least some of the arguments in the SpaceX case are likely to prevail. However, “for the time being, it’s best to plan that the NLRB will remain intact and continue to function as it always has,” he added. “It could be years before we have finality with regard to the issues raised in the SpaceX suit.”

In a separate case, the 2nd Circuit appeared likely to reject a nursing home operator’s constitutional challenge of the NLRB’s judges, according to Bloomberg Law.

We’ve gathered articles on the news from SHRM and other outlets.

Supreme Court Decision

The Supreme Court decision in Jarkesy on June 27 stripped the U.S. Securities and Exchange Commission’s (SEC’s) ability to recover civil penalties for fraud at administrative proceedings. In its decision, the court said the Constitution requires the government to seek civil penalties for federal-securities fraud before a jury in federal court rather than before the agency. Court observers said the decision might lead to similar limitations on the enforcement authority of the NLRB.

(SHRM)

SpaceX’s Arguments

SpaceX is arguing that the NLRB’s structure violates the Constitution because:

• The agency’s ALJs are “removable only for cause, by officials who themselves are removable only for cause,” and these two layers of removal protection are at odds with the president’s removal power under Article II.
• The agency has authorized itself to award expanded remedies that “go far beyond” the equitable back pay remedy permitted by the NLRA, allowing its ALJs to adjudicate private rights in violation of the right to a jury trial.
• NLRB members exercise prosecutorial, legislative, and adjudicatory authority within the same proceedings, in violation of the separation of powers and right to due process.

If SpaceX succeeds and the NLRB is dismantled, union organizing campaigns, union elections, workers’ rights, and employer private property disputes will be transformed.

(Fisher Phillips)

Lower Court Ruling for SpaceX

A federal district judge in Texas said he would block the NLRB from pursuing claims that Elon Musk’s SpaceX forced workers to sign illegal severance agreements, pending the outcome of the rocket maker’s challenge to the agency’s structure. SpaceX and its lawyers did not respond to requests for comment. An NLRB spokesperson declined to comment. 

The judge issued an order on July 23 granting SpaceX’s motion for a preliminary injunction, finding a substantial likelihood of success on its argument that the NLRB’s ALJs and members are unconstitutionally insulated from removal. The NLRB has appealed this decision to the 5th Circuit.

(Reuters and Perkins Coie)