In a major setback for the National Labor Relations Board (NLRB), the Fifth Circuit Court of Appeals recently upheld an injunction, preventing the NLRB from holding an unfair labor practice (ULP) hearing against SpaceX and other employers.
Those employers had challenged the NLRB’s structure as unconstitutional, and the Fifth Circuit held that the employers had a substantial likelihood of success in making their case that the NLRB’s structure was unconstitutional. This ruling puts at risk the NLRB’s ability to proceed with ULP proceedings until this issue is resolved, and the ruling likely signals a Supreme Court showdown on this issue.
Case Background
In a consolidated appeal involving SpaceX, and other similarly situated employers, the Fifth Circuit affirmed a federal district court’s preliminary injunction against the NLRB. The NLRB’s Regional Director had determined in separate cases that were later consolidated that SpaceX and other employers had engaged in certain unfair labor practices. Thus, these employers faced an administrative trial before an NLRB Administrative Law Judge (ALJ) to determine if their conduct violated the law. As a matter of process, the NLRB ALJ conducts the administrative trial, makes evidentiary rulings, findings of fact, and conclusions of law in rendering a decision. The ALJ’s decision then becomes final unless one of the parties – the NLRB or the employer in question – files exceptions before the full NLRB. If exceptions are filed, the board members may adopt the ALJ’s decision or render their own decision based on the evidence presented before the ALJ.
Prior to the beginning of SpaceX’s administrative trial, SpaceX filed a lawsuit in federal court, alleging that the NLRB’s structure was unconstitutional due to the various for-cause removal protections afforded to both members of the NLRB and to NLRB ALJs. SpaceX sought a preliminary injunction, enjoining the pending administrative hearing until resolution of its constitutionally-based claims.
A federal district judge granted the preliminary injunction, and the Fifth Circuit affirmed that decision. A party requesting a preliminary injunction against the government must show the following:
- The likelihood of success on the merits.
- Irreparable harm.
The balance of equities and the public interest weigh in favor of granting the injunction.
Perhaps most notably, the Fifth Circuit found that SpaceX was likely to be successful on the merits because the structure of the NLRB is likely unconstitutional and that SpaceX met the required showing of “irreparable harm” by being subjected to an unconstitutional agency authority.
In concluding that SpaceX was likely to be successful on the merits, the Fifth Circuit reviewed its own precedent along with the precedent of the Supreme Court.
Prior Precedent
As for the ALJs, the Fifth Circuit looked to its decision in Jarkesy v. Securities and Exchange Commission, 34 F.4th 446 (5th Cir. 2022). In Jarkesy, the court concluded that the removal protections for SEC ALJ’s were unconstitutional because the ALJ’s were only removeable for good cause, which was determined by a Merit System Protection Board (MSPB), and the MSPB members themselves were also only removable for good cause. The Fifth Circuit concluded that such a structure interfered with the president’s ability to execute his constitutional duty to take care that the laws are faithfully executed (known as the “take care clause”). The Fifth Circuit found the removal protections afforded to the NLRB’s ALJs to be nearly identical, and therefore, likely unconstitutional as well.
As for the NRLB members, the Fifth Circuit looked to Humphrey’s Executor v. United States, 295 U.S. 602 (1935), a Supreme Court decision that upheld for-cause removal protection for a multimember body of experts working for the Federal Trade Commission. The Fifth Circuit reconciled this holding with its finding that the NLRB’s removal protection was unconstitutional by emphasizing that Humphrey’s Executor only carved out a narrow exception to the general rule. The general rule was that the president has the authority to remove his subordinates at will. The Fifth Circuit noted that in 90 years since Humphrey’s Executor, the Supreme Court has been reluctant to extend that holding beyond the specific facts of the case, recognizing the exception as limited to “multimember expert agencies that do not wield substantial executive power.” However, because the NLRB does wield substantial executive power and because the NLRB does not share the structural hallmarks of the multimember body in Humphrey’s Executor, its for-cause removal protection is likely unconstitutional.
The Fifth Circuit also relied on Axon Enterprise, Inc. v. Federal Trade Commission, 598 U.S. 175 (2023) to determine that SpaceX faced irreparable harm. The Fifth Circuit stated that, as in Axon, because SpaceX’s injury—being subjected to a proceeding conducted by an unconstitutionally isolated ALJ—is a “here and now injury,” the harm is irreparable. Additionally, the Fifth Circuit noted that “[b]inding precedent, first principles, and common sense align: forcing the Employers to appear before an unconstitutionally structured agency inflicts irreparable harm.”
In a partial dissent in the SpaceX decision, Circuit Judge Jacques L. Wiener, Jr. found the majority’s holding on irreparable harm to “impermissibly extend” Axon and create an unnecessary circuit split. To date, the Second (implicitly), Sixth and Tenth circuits have rejected the argument that being subject to an unconstitutional proceeding alone constitutes the requisite irreparable harm to warrant injunctive relief. In other words, employers in these circuits must show how a claimed unconstitutional proceeding would cause them irreparable harm in that particular instance, rather than relying solely on the harm caused by the proceeding itself.
Because these various Circuit Courts of Appeal read the Supreme Court’s Axon ruling in different ways, this Fifth Circuit decision will likely lead to the Supreme Court accepting the case to resolve the conflict. Any such Supreme Court ruling could have a major impact on the NLRB and the future of its proceedings.
