NLRB Denied Contractors Due Process; NLRA Section 10(e) Did Not Bar Due Process Argument: Fifth Circuit | Practical Law

NLRB Denied Contractors Due Process; NLRA Section 10(e) Did Not Bar Due Process Argument: Fifth Circuit | Practical Law

In IEC-Houston v. NLRB, the US Court of Appeals for the Fifth Circuit held that the National Labor Relations Board (NLRB) unlawfully denied a trade group of electrical contractors due process by holding it liable for unfair labor practices that were neither pled nor litigated and based on a novel theory of liability.

NLRB Denied Contractors Due Process; NLRA Section 10(e) Did Not Bar Due Process Argument: Fifth Circuit

by PLC Labor & Employment
Published on 20 Jun 2013 • USA (National/Federal)
In IEC-Houston v. NLRB, the US Court of Appeals for the Fifth Circuit held that the National Labor Relations Board (NLRB) unlawfully denied a trade group of electrical contractors due process by holding it liable for unfair labor practices that were neither pled nor litigated and based on a novel theory of liability.
On June 17, 2013, the US Court of Appeals for Fifth Circuit issued an opinion in Independent Electrical Contractors of Houston, Inc. v. NLRB, holding that the NLRB unlawfully denied a trade group of electrical contractors due process by holding it liable for unfair labor practices (ULPs) that were never pled or litigated and based on liability theories unsupported by NLRB precedent.
The Fifth Circuit preliminarily held that because of special circumstances, the trade group was not foreclosed by Section 10(e) of the NLRA (29 U.S.C. §160(e)) from asserting its due process arguments even though it did not formally make those argument to the NLRB before appealing to the circuit court.

Background

Since 1955, a trade group of nonunionized electrical contractors, known as Independent Electrical Contractors of Houston (IEC-Houston) has run a program (shared man program) allowing temporarily understaffed group members to borrow workers from group members that were contemporaneously over-staffed. This program resulted in short-term staffing of experienced electricians and reduced group members' potential liability for unemployment benefits. In 2007, the panel (Board) heading the NLRB's judicial functions found that users of the shared man program did not intentionally and unlawfully discriminate against union supporters even though borrowing employees referred from other IEC-Houston group members instead of hiring unknown electricians had the effect of limiting hiring or excluding union supporters from work (Pollock Elec., Inc. Also see Centex Indep. Elec. Contractors Ass'n).
In 1990, IEC-Houston set up an application referral service, allowing electricians who were looking for work to submit applications that were pooled based on experience level and shared among IEC-Houston group members. To remain on the top of the active job-seekers list, many electricians filed multiple applications each month. On September 9, 1997, as clerical time and expense continued to increase, IEC-Houston began charging a fee for each additional application that an electrician filed in a month. IEC-Houston waived the fee for electricians who were recently laid off by group members.
In 1994 and 1996 IEC-Houston representatives published articles promoting use of the shared man program and application referral service to minimize the risks connected with hiring electricians "off the street" through public advertising. The articles specifically noted that these programs minimize union organizing risks because the group anticipated unions would use public job listings to select targets for salting campaigns.
Local 716 of the International Brotherhood of Electricians (union) brought many ULPs charges against IEC-Houston and its group members, alleging that through the shared man plan and application referral service, they unlawfully discriminated by refusing to hire union members and salts. The NLRB General Counsel issued separate complaints alleging violations of Section 8(a)(3) of the NLRA for intentional discriminatory hiring practices (with derivative violations of Section 8(a)(1)). However, in neither of the complaints did the General Counsel allege independent Section 8(a)(1) violations that IEC-Houston or its group members interfered with employees' Section 7 rights. Section 8(a)(1) violations, unlike Section 8(a)(3) charges:
  • Do not require proof of unlawful intent.
  • Require a review of the totality of circumstances including a balancing of intrusions on Section 7 rights against an employer's rights to manage its property and legitimate business interests.
On September 29, 1998, an NLRB administrative law judge (ALJ) held that the two services excluded union members from employment, violating Section 8(a)(3) of the NLRA. The ALJ found that:
  • The shared man program and referral service were inherently discriminatory because they excluded union workers.
  • The $50 application fee was inherently discriminatory because union members were required to pay but recently laid off employees of IEC-Houston members (non-union) were not.
  • The newsletter articles were background evidence of anti-union animus.
  • IEC-Houston unlawfully refused to inform applicants about which employers considered their applications.
After the parties excepted to the ALJ's decision, on August 27, 2010, a Board majority in KenMor Electrical Co. sua sponte:
  • Did not adopt the ALJ's findings that IEC-Houston violated Section 8(a)(3) of the NLRA by applying the shared man program, application referral service or any of their components.
  • Found that IEC-Houston's newsletter articles were an admission that the application referral service interfered with the right of union member and salts to apply and be hired on an equal basis with nonunion applicants.
  • Found that the application referral service tended to interfere with Section 7 activity because it disadvantaged salts and union applicants by, among other things, selectively imposing the $50 new application fee.
  • Found that the application referral service had a coercive impact because none of the named union applicants were hired even though they were more qualified than the nonunion electricians who were hired.
A dissenting Board member asserted that:
  • The Board majority:
    • relied on a strict liability disparate impact theory that was impermissible under the NLRA to find the Section 8(a)(1) violation; and
    • denied the respondent's administrative due process by reaching well beyond the allegations pled and liability theories litigated.
  • The ALJ correctly found that the respondents violated Section 8(a)(3) by charging the reapplication fee because there was sufficient evidence that the fee was implemented in response to union organizing.
(KenMor Elec. Co.)
In the parallel proceeding, another ALJ on October 5, 2001, applied the same analysis as the ALJ in KenMor, holding that IEC-Houston violated Section 8(a)(3) of the NLRA (Indep. Elec. Contractors of Houston, Inc.)
After the parties excepted to the ALJ's decision, on September 30, 2010, a Board majority:
  • Did not adopt the ALJ's findings that IEC-Houston violated Section 8(a)(3) of the NLRA by applying the shared man program, application referral service or any of their components.
  • Acknowledged that IEC-Houston abandoned its $50 reapplication fee for the period covered by this lawsuit and began posting open positions publicly online.
  • Found that it would be redundant to:
    • evaluate IEC-Houston's shared man program and application referral services, which were already found unlawful; or
    • impose identical remedies for identical violations of Section 8(a)(1).
  • Dismissed the complaint.
One Board member concurred that the complaint should be dismissed, but, in dissent, asserted that:
  • The KenMor majority's analysis that was adopted in this case was erroneous because it:
    • created a new theory of liability to circumvent failures by the NLRB General Counsel to prove unlawful intent (required for the 8(a)(3) allegations) and a bar on disparate impact litigation under the NLRA;
    • created and ruled on a legal theory that was neither pled nor fully litigated;
    • found any practice by IEC-Houston, other than the $50 reapplication fee, which was an 8(a)(3) violation, to be unlawful; and
    • to the extent it applied an 8(a)(1) analysis, failed to consider or give weight to IEC-Houston's potential business justifications for its practices as part of the totality of circumstances test.
IEC-Houston filed a petition for review of both decisions with the US Court of Appeals for the Fifth Circuit. The NLRB's General Counsel cross-petitioned for enforcement of KenMor.

Outcome

By a 2-1 majority, a panel of the Fifth Circuit granted IEC-Houston's petitions for review and denied the Board's cross-petition for enforcement. The majority held that the NLRB violated IEC-Houston's rights to administrative due process because:
  • IEC-Houston was charged and tried with a Section 8(a)(3) violation but held liable for an independent Section 8(a)(1) violation under a novel liability theory requiring different and less proof.
  • IEC-Houston prepared defenses for Section 8(a)(3) intentional discrimination allegations with no reason to suspect that the Board majority would sua sponte hold it liable for unalleged Section 8(a)(1) violations that its practices tended to interfere with employees' Section 7 rights.
  • The Board disregarded its own precedent that:
    • requires respondents know the accusations against them (Champion Int'l Corp.);
    • prohibits changes in liability theories in the middle of litigation (Lamar Cent. Outdoor);
    • prohibits NLRB ALJs from deciding cases using a broader theory of liability than the NLRB's General Counsel chose to litigate (Sierra Bullets, LLC);
    • permits liability determinations on unalleged ULPs only when the ULPs are closely connected to the complaint allegations and have been fully litigated (Pergament United Sales, Inc.);
    • requires that the Board allow a respondent charged with a Section 8(a)(1) violation to demonstrate substantial business justifications for its conduct and balance those justifications against the conduct's effect on employees Section 7 rights (California Newspapers P'ship); and
    • held recruitment and referral services that give preferences to known persons over unknown persons are lawful even if they have the effect of limiting employment opportunities of union supporters (see Pollock).
  • Applied an inconsistent motive analysis by holding that motive was irrelevant to a Section 8(a)(1) violation as a justification for disregarding evidence that IEC-Houston adopted the allegedly unlawful practices for business reasons well-before any union activity, but using the newsletters to conclude that IEC-Houston had an unlawful anti-union motive.
  • Declined to resolve whether the Board's novel liability theory:
    • amounted to a disparate impact theory, which would have been impermissible based on Court of Appeals for the District of Columbia Circuit precedent (see Contractors' Labor Pool, Inc.); or
    • were supported by substantial evidence.
Preliminarily, the same 2-1 majority held that the court could consider:
  • The IEC-Houston's due process argument, even though it did not formally raise it during the NLRB litigation or for the Board on a motion for reconsideration (as is usually required under Section 10(e) of the NLRA (29 U.S.C. §160(e)), because:
    • the Section 10(e) provision requiring that issues be raised before the Board to be preserved for appeal is not jurisdictional. Instead, Section 10(e) is an exhaustion of remedies provision that is waived unless the NLRB raises it as an affirmative defense (see Reed Elsevier, Inc. v. Muchnick);
    • the NLRB did not raise a Section 10(e) exhaustion defense in this case;
    • the exhaustion provision of Section 10(e) is for the NLRB's benefit and cannot be raised by an intervening party (here, the union);
    • the purpose of Section 10(e) is to give notice to the NLRB of the objections that it will confront when defending its actions. Hearing the due process argument would not implicate that policy consideration because the Board, anticipating due process concerns, preemptively asserted its positions regarding administrative due process;
    • the extraordinary circumstances exception to the 10(e) exhaustion provision applied because the Board already ruled on due process concerns (making a motion for reconsideration on that point futile) and justice would not be served by delaying final resolution of the matter for further Board deliberations. There were already eight and nine year delays between the ALJs' decisions in the parallel cases and the Board's review of these cases; and
    • IEC-Houston alluded to due process issues when excepting to the ALJ's decisions, to which the NLRB's General Counsel responded in opposition briefs.
  • The petition to review Independent Electrical Contractors, even though the Board dismissed that complaint and IEC-Houston arguably was not an aggrieved party (as normally required for a party to petition for review under Section 10(f) of the NLRA (29 U.S.C. §160(f)) because the case was a continuation of KenMor rather than an independent decision, so the cases ought to be considered together.
The dissenting judge asserted that:
  • The court lacked jurisdiction to consider the due process argument because it was not raised before the Board.
  • The court lacked jurisdiction to consider the petition for review of the dismissed complaint.
  • The Board's findings were supported by substantial evidence.

Practical Implications

This decision outlines and provides useful precedent for any employer challenging the NLRB for failing to:
  • Identify and settle on:
    • which section of the NLRA that it charges an employer with violating;
    • the factual grounds supporting an employer's ULP liability; and
    • the legal theory under which it seeks to impose ULP liability.
  • Consider business justifications for employer actions alleged to have violated Section 8(a)(1) of the NLRA.
  • Follow its own precedent or rationally explain why:
    • a case is distinguishable from controlling precedent; or
    • it is necessary to overrule or create exceptions to controlling precedent.
  • Analyze whether the NLRB's General Counsel has satisfied its prosecutorial burdens for the complaint allegations that were litigated rather than unalleged and unlitigated theories of liability.
This case also sets out several useful arguments for employers that may be hampered by Section 10(e). This is the first case in which a circuit court interpreted Section 10(e) of the NLRA as a non-jurisdictional requirement that:
  • The NLRB waives unless it raises it as an affirmative defense.
  • Intervening parties have no authority to raise.
Employers also can cite the decision for examples of extraordinary circumstances that might justify a failure to exhaust Board remedies, such as not moving the Board to reconsider its decision, when the Board:
  • Sua sponte raised and set out its opinion on an unlitigated issue.
  • Took an exorbitant amount of time to decide a case.
  • Had the issue before it, because it was raised implicitly or in a related context.
The case also appears to be the first case in which a circuit court created an exception to the requirement in Section 10(f) that a petitioner be aggrieved by the Board order for which it was seeking review and not just the findings or analysis in the Board's decision. This exception may help or hinder employers depending on who is petitioning a circuit court for review.

Court Documents