Supreme Court Strikes Down Two-Member NLRB

Two heads are better than one, but are they better than three? "No" said the Supreme Court in New Process Steel v. NLRB, 500 U.S. _ (U.S. June 17, 2010), at least not when it comes to the number of members required for the National Labor Relations Board ("NLRB") to issue a valid decision. In a 5-4 decision, the U.S. Supreme Court held that the five-member NLRB was not authorized to issue orders during the 27-month period when it had only two members. According to the Court, the Taft-Hartley Amendments to the National Labor Relations Act ("NLRA") require that a delegee group maintain a membership of three - not two - in order for the Board to exercise its powers.

The Taft-Hartley Act's Delegation Clause and Quorum Requirement

In 1947 when Congress passed the Taft-Hartley Act (the "Act") amending the NLRA, it increased the number of members on the NLRB from three to five. It also increased the number of NLRB members necessary for a quorum from two to three members. Taft-Hartley further authorized the NLRB to delegate its authority to three-member panels.

The dispute at the center of New Process Steel began during the end of George Bush's Presidency and exposed a quirk in the NLRA as amended. Under the Act, NLRB members do not hold-over when their terms expire, rather they leave the NLRB, creating a vacancy. Reacting to the inevitability of a loss of a quorum - the Board was down to four members and expecting two more vacancies at the end of the year - in December 2007, the Board delegated its full authority to a group of three members. After two members' appointments expired, the remaining two members - one Democrat and one Republican - proceeded to issue Board decisions for the next 27 months as a two-member quorum of a three-member group. The two members issued approximately 600 decisions over the next two years until the Senate finally recessed, allowing President Barack Obama to make recess appointments. On March 27, 2010, President Obama appointed two of the three individuals he had nominated for positions on the National Labor Relations Board ("NLRB") -- Craig Becker (D) and Mark Pearce (D). Not given a recess appointment was Brian Hayes, the sale Republican nominee.

The Court's Decision in New Process Steel

During the 27-month period, the two-member Board issued two decisions sustaining unfair labor practice complaints against New Process Steel. New Process Steel sought review, challenging the Board's authority to issue orders. The Seventh Circuit ruled in favor of the Government, holding that the two members constituted a valid quorum to which the Board had legitimately delegated its powers. The Supreme Court reversed. 

Writing for the Court, Justice Stevens examined the text of the statute, its legislative history and the NLRB's past practice. The Court recognized that what it referred to as the "delegation" clause could be read two ways. The first was that a delegation to three members was valid in perpetuity regardless of the period of time there were actually three members. The second was that a delegation to three members was valid only for so long as there were three members. The Court concluded that requiring the delegation to be a group consisting of three members at all times was the only way to harmonize all of the Taft-Hartley Amendments. The Court further noted that its interpretation is consistent with the NLRB's own longstanding practice of acting in accordance with this limitation. While the NLRB historically has allowed two members of a three-member group to issue decisions when one member was disqualified from a case, it had not (up until 2007) allowed two members to act as a quorum of a defunct three-member group.

Practical Implications For Employers

As noted above, the two-member panel issued approximately 600 decisions, all of which now are invalid. It is unlikely, however, that this result will have a significant impact in those cases in which an employer was the petitioner or appellee. If the employer could not convince Member Schaumber (Republican) of the correctness of its position, it is unlikely to meet with a different result before Members Becker and Pearce, both of whom are former union lawyers.

Paradoxically, unions may be the big winners. A rehearing before a panel consisting of at least two union attorneys and, after August (when Member Schaumber's term expires), a panel of three union attorneys, likely will be more favorable than the prior hearing before the two-member panel. Employers should anticipate seeing more union appeals and petitions for a rehearing, but few by employers. While the General Counsel's response in cases in which it lost has not been disclosed or discussed, it is more likely to resemble the union strategy.

The decision also calls into question all of the litigation initiated by the General Counsel - primarily injunction cases and contempt and enforcement actions against parties who refused to comply with a decision by the two-member Board. Those cases which currently are pending in appellate courts across the country likely will be remanded to the NLRB for reconsideration. Injunction cases and contempt proceedings likely will have to be dismissed and then refiled.

The more challenging questions concern how the New Process Steel decision will impact those cases where the party did not raise an explicit challenge to the NLRB's authority, but rather complied with the NLRB's order. Can the employer unring the bell? For example, assume the NLRB directed an election over the employer's opposition or ordered reinstatement of a discharged employee. Employers may be able to challenge actions taken as result of the NLRB's invalid orders, perhaps causing a rerun election. Similarly, if the two-member NLRB found that an employer violated the Act and the employer now is complying with the order, can the employer's future non-compliance result in an enforcement action? The Court's decision raises a number of questions and may give employers new opportunities to challenge orders issued by the two-member NLRB.

If you would like to discuss how the Supreme Court's decision in New Process Steel could impact your situation, please contact your Baker & McKenzie lawyer or any of the lawyers in our Labor and Employee Relations practice.