National Labor Relations Board Inspector General and Ethics Officer Employ Erroneous Ethics Standard

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National Labor Relations Board Inspector General and Ethics Officer Employ Erroneous Ethics Standard

August 7, 2018 24 min read Download Report
jippingt
Deputy Director, Center for Legal and Judicial Studies
Thomas is the Deputy Director of the Edwin Meese III Center for Legal and Judicial Studies and a Senior Legal Fellow.

Summary

As with other institutions of government, the work of the National Labor Relations Board must be perceived as legitimate and free from inappropriate influence or manipulation. It is, therefore, a serious matter when a Board decision is questioned because a Board member participating in that decision should have been recused. The NLRB’s Inspector General and Designated Agency Ethics Official recently came to this conclusion by applying a novel standard for recusal. This Legal Memorandum will explain the controversy and evaluate the validity of their recusal standard.

Key Takeaways

The novel recusal standard recently applied by the NLRB’s Inspector General and Designated Agency Ethics Officer has neither a legal basis nor any precedent.

This standard is not warranted by the ethics pledge taken by executive branch appointees; it is undefined and is entirely subjective.

Furthermore, it creates a disturbing catch-22 for Board members to whom it is applied.

On November 14, 2016, a National Labor Relations Board (NLRB, or Board) administrative law judge (ALJ) issued a decision in Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co.REF He found that two companies accused of unfair labor practices under the National Labor Relations Act “are single and joint employers, and are jointly and severally liable for the violations found herein.”REF The ALJ reached this conclusion by applying the joint-employer standard established by the Board in Browning-Ferris Industries of California, Inc. and LeadPoint Business Services.REF

The Board had a 3–2 Democratic majority when it decided Browning-Ferris in August 2015. With one Democratic and one Republican departure over the next two years, President Donald Trump’s appointment of Marvin Kaplan in August 2017 and William Emanuel one month later created a 3–2 Republican majority.

On December 14, 2017, the Board affirmed the ALJ’s conclusion in Hy-Brand that the two companies are joint employersREF but stated that “we disagree with the legal standard the judge applied to reach that finding.”REF The Board “overrule[d] Browning-Ferris and restore[d] the joint-employer standard that existed prior to the Browning-Ferris decision.”REF The next day, the Board voted to direct the NLRB’s general counsel to seek remand of several decisions, including Browning-Ferris, which were then on appeal to the U.S. Court of Appeals for the D.C. Circuit. On December 19, 2017, the Board unanimously voted to rescind this directive, recognizing that the general counsel was already required to notify the courts of Board decisions that bear on pending cases.

Following this, issues were raised in two different ways regarding the propriety of Emanuel’s participation in the Hy-Brand matter. First, on January 11, 2018, the parties originally charging unfair labor practices in the Hy-Brand matter filed a motion for “Reconsideration, Recusal, and to Strike.”REF Second, a complaint submitted to the NLRB’s hotline triggered an investigation by the Office of Inspector General into whether Emanuel had a conflict of interest in the decision to seek a remand of the Browning-Ferris case because his former law firm had represented a party in that case.REF That investigation, in turn, caused NLRB Inspector General David P. Berry to investigate whether Emanuel’s participation in the Hy-Brand case itself was appropriate.

In a memorandum dated February 9, 2018,REF Berry concluded that Emanuel should have recused himself from the Board’s consideration of Hy-Brand. Failing to do so, Berry said, violated the ethics pledge Emanuel took upon his appointment pursuant to Executive Order 13770.REF According to Berry, this constituted a “serious and flagrant problem” that required notification to the Board and the relevant congressional oversight committees.REF Berry’s determination was echoed in a memorandumREF dated February 21, 2018, by Lori Ketcham, the Board’s Designated Agency Ethics Official. Five days later, citing these determinations, the Board, without Emanuel’s participation, granted a motion for reconsideration and vacated its Hy-Brand decision.REF

As with other institutions of government, it is crucial that decisions by the NLRB’s members and, therefore, the NLRB itself be perceived as legitimate and free from inappropriate influence or manipulation. If the Berry/Ketcham recusal standard is valid, their conclusion suggests that an NLRB member acted improperly. If that standard is invalid, however, it suggests inappropriate interference in the important work of the Board. This Legal Memorandum, therefore, will explain the controversy over Emanuel’s participation in Hy-Brand and evaluate the validity of the Berry/Ketcham recusal standard.

National Labor Relations Board

The National Labor Relations Act established the NLRB in 1935, and the Labor Management Relations Act of 1947 expanded its membership from three to five. Members serve for five-year terms, with one expiring each year, and sit in three-member panels to adjudicate cases. Today, the five members and the general counsel of the NLRB are nominated by the President and must be confirmed by the Senate.

Berry’s memo, dated March 20, 2018, describes the NLRB’s process for handling cases. The Executive Secretary’s office assigns a case to an individual member.REF That member’s staff, called the originating staff, meets with each member assigned to the case to determine his or her vote. Once a majority is reached, the originating staff drafts an opinion and circulates it to the other participating members. After a series of modifications are made (and any dissents are drafted and circulated), a “conformed copy” of the final draft is circulated and approved by the participating members.

The parties and issues that come before the NLRB often represent significant, and sometimes divisive, economic and political interests. As a result, nominations to the Board have sometimes been controversial. For example, in 1980, the first five Senate votes to end debate, and the first two filibusters, of an executive branch nomination were of President Jimmy Carter’s choices to be general counsel and a member of the NLRB. The Senate has taken 11 roll call votes on confirmation of these two NLRB positions, with each vote receiving an average of 42 negative votes.REF

Another example occurred in January 2012, when President Barack Obama used recess appointmentsREF to create a Democratic NLRB majority. The Senate met on January 3 to convene the second session of the 112th Congress and, 40 seconds later, adjourned until January 6.REF While no President had ever made a recess appointment during such a short break, Obama recess-appointed three NLRB members on January 4. The Justice Department’s defense of those appointments, offered after they were made, was that short “pro forma” sessions during which no business is conducted are not real sessions that create new recesses, but breaks that merely “punctuated” a single, much longer recess.REF The Supreme Court unanimously found those recess appointments unconstitutional.REF

The Ethics Pledge

On January 28, 2017, President Donald Trump issued Executive Order 13770, titled “Ethics Commitments by Executive Branch Appointees.” It requires every executive branch agency appointee to sign a pledge (Ethics Pledge) relating to conflicts of interest during and after his or her service.REF The sixth obligation reads: “I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.”REF This pledge is directed at eliminating any “lingering affinity and mixed loyalties” that an appointee might have.REF

Executive Order 13770 defines the key terms in this obligation as follows:

  • “[P]articular matter involving specific parties”REF means “a specific proceeding affecting the legal rights of the parties or an isolatable transaction or related set of transactions between identified parties, such as a specific…enforcement action, administrative adjudication, or court case.”
  • “[D]irectly and substantially related to my former employer or former clients” means “[m]atters in which the appointee’s former employer or a former client is a party or represents a party.”REF
  • “[F]ormer client” means “any person for whom the appointee served personally as agent, attorney, or consultant” but does “not include clients of the appointee’s former employer to whom the appointee did not personally provide services.”REF

The Joint-Employer Issue

Under the National Labor Relations Act, business entities deemed to be employers are subject to collective-bargaining obligations, liability for unfair labor practices, and other matters under the NLRB’s jurisdiction. The NLRB recently explained:

The Act’s bargaining obligations are formidable—as they should be—and violations can result in significant liability. When it comes to the duty to bargain, resort to strikes or picketing, and even the basic question of “who is bound by this collective-bargaining agreement,” there is no more important issue than correctly identifying who is the employer. Changing the test for identifying the employer, therefore, has dramatic implications for labor relations policy and its effect on the economy.REF

Pre-2015. The National Labor Relations Act does not define “employer.” Predictably, businesses prefer a narrow definition and labor unions a broad one of not only a single employer but also when multiple businesses are “joint employers” of a worker. The Supreme Court held in 1964 that determining joint-employer status is a fact-specific inquiry about whether an employer “possessed sufficient control over the work of the employees.”REF Refining that standard in 1982, the U.S. Court of Appeals for the Third Circuit held that “the ‘joint employer’ concept recognizes that the business entities involved are in fact separate but that they share or co-determine those matters governing the essential terms and conditions of employment.”REF The NLRB embraced the Third Circuit’s standard, holding that “there must be a showing that the employer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.”REF

Browning-Ferris Industries of California, Inc. (2015). Three decades later, in Browning-Ferris,REF the Board addressed whether Browning-Ferris and a company called LeadPoint were joint employers. Emanuel’s former employer, Littler Mendelson PC, represented LeadPoint. On August 27, 2015, the NLRB took the opportunity to “revisit and to revise the Board’s joint-employer standard.”REF By a 3–2 vote along party lines, the Board expanded the definition of joint employers to include those who could, but never did, exercise control over the essential terms and conditions of employment or had done so only indirectly. Applying its new rule retroactively, the Board found that a joint-employer relationship existed.REF Browning-Ferris appealed this decision to the U.S. Court of Appeals for the DC Circuit.

In dissent, the two Republican members of the Board called this “the most sweeping of recent major decisions” and predicted that “no bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards.”REF Rather than its recognized authority to determine facts, they wrote, this decision asserted “authority to modify the agency standard itself. This type of change is clearly within the province of Congress, not the Board.”REF In sum, “we believe the majority impermissibly exceeds our statutory authority, misreads and departs from prior case law, and subverts traditional common-law agency principles. The result is a new test that confuses the definition of a joint employer and will predictably produce broad-based instability in bargaining relationships.”REF

Hy-Brand Industrial Contractors, Ltd. (2017). Two years later, the Hy-Brand Industrial Contractors, Ltd. case was assigned to Emanuel on October 16, 2017.REF Given the important policy implications of the case, however, all five members of the Board participated in the adjudication of the case. On December 14, 2017, the Board issued its decision, once again re-visiting the joint-employer definition. The Republican majority held:

[T]he Browning-Ferris standard is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations. Accordingly, we overrule Browning-Ferris and return to the principles governing joint-employer status that existed prior to that decision.REF

The Charging Parties’ Argument for Recusal

As noted above, the parties originally charging unfair labor practices filed a motion for “Reconsideration, Recusal, and to Strike.” They argued that Emanuel should have recused himself in Hy-Brand because of its result, that is, because it overturned the Browning-Ferris decision.REF Had Emanuel been on the NLRB in 2015, they argued, he would have had to recuse himself in Browning-Ferris because his former law firm represented one of the parties. Because Hy-Brand overruled a “case in which Member Emanuel is ineligible to participate,”REF they argued, he should also have recused himself from any reconsideration of that precedent.REF

The Inspector General’s Conclusion on Recusal

Berry found that, by participating in the Hy-Brand case, Emanuel had violated the sixth obligation in the Ethics Pledge because it was a “particular matter involving specific parties that is directly and substantially related to [his] former employer.” This is an unusual conclusion because none of the Hy-Brand parties or counsel were connected in any way to the earlier Browning-Ferris case. In addition, neither Emanuel nor his employer, Littler Mendelson, ever represented any of the parties in Hy-Brand. The basis for Berry’s conclusion, however, was even more unusual.

While the charging parties argued that the result in Hy-BrandREF showed that Emanuel should have recused himself, Berry focused instead on the Board’s process for reaching that result. He concluded that “the Hy-Brand deliberation was a continuation of the Browning-Ferris deliberative proceedings.”REF In other words, Berry stated that the two cases themselves were, in effect, the same matter. In fact, Berry actually referred to a single “Hy-Brand/Browning-Ferris matter.”REF

Berry acknowledged that Browning-Ferris and Hy-Brand “started out as two distinct and separate matters”REF but insisted that “it is now impossible to separate the two.”REF Berry stated that the “wholesale incorporation of the dissent in Browning-Ferris into the Hy-Brand decision consolidated the two cases into the same ‘particular matter involving specific parties.’”REF This “level of consolidation,”REF according to Berry, meant that “Hy-Brand was merely the vehicle to continue the deliberations of Browning-Ferris.”REF He stated that the NLRB “was in fact not deciding Hy-Brand on the merits of that case, but was continuing the deliberative proceedings of the Browning-Ferris decision.”REF In short, according to Berry, wholesale incorporation of the Browning-Ferris dissent resulted in consolidation of the two cases into one. For these reasons, since Emanuel would have had to recuse himself in Browning-Ferris, he should also have recused himself in Hy-Brand.

The Designated Agency Ethics Official’s Conclusion on Recusal

In a letter dated April 6, 2018, to the chairmen and ranking members of the relevant congressional committees, Emanuel’s counsel asserted that Ketcham advised Emanuel that he had no duty to recuse himself in either the Browning-Ferris remand directive or the Hy-Brand case. The letter also claims that Berry told Ketcham not to provide that advice in writing.REF Neither Berry nor Ketcham deny these assertions—rendering her subsequent two memoranda supporting Berry’s conclusion baffling.

Nevertheless, Ketcham explained that on October 18, 2017, two days after Hy-Brand was assigned to Emanuel, then-Chairman Philip Miscimarra sent an e-mail to Emanuel and Kaplan, the other Republican Board member. “Miscimarra’s email included an attached proposed majority opinion for Hy-Brand.”REF Ketcham noted that the Board’s Hy-Brand opinion, issued on December 14, included pages “21–48 from the dissent in Browning-Ferris [sic]…almost word-for-word, with minor non-substantive modifications.”REF The “wholesale adoption of that opinion” covered not only the joint-employer standard but also how it applied to the Browning-Ferris parties.REF She concluded that the two cases thereby became “intertwined,”REF creating a “commonality and overlap in the way that the two cases were adjudicated.”REF

Why the Inspector General and Ethics Official Are Wrong

Berry and Ketcham concluded that Emanuel had a duty to recuse himself from Hy-Brand, not because the two cases involved the same joint-employer issue or because Hy-Brand changed that standard. Their narrower conclusion was “limited to very specific facts as to what actually occurred in the deliberative process of Hy-Brand.”REF In other words, Berry and Ketcham concluded that Emanuel had a duty to recuse himself in Hy-Brand not because of what the NLRB did in Hy-Brand but because of how the NLRB did it.

Berry and Ketcham stated that incorporating “wholesale…the dissent in Browning-Ferris…consolidated the two cases into the same ‘particular matter involving specific parties.’”REF This standard has at least three fundamental flaws. First, neither Berry nor Ketcham identified any authority, precedent, source, or other support for their wholesale-incorporation-equals-consolidation theory. Why is incorporating wording from a decision (or a dissent) in a different case inappropriate in any manner? This theory was not tangential, secondary, or minor. It was the sole basis for concluding that a member of the NLRB violated the Ethics Pledge—and resulted in the Board vacating one of its decisions. A feature so central to such a significant decision should have some kind of foundation or authority to back it up.

The second flaw compounds the first. The Berry/Ketcham standard is both undefined and inherently subjective. While Ketcham identified the number of pages of the Browning-Ferris dissent that appear to have been incorporated into the Hy-Brand majority opinion, neither she nor Berry suggested why this number supported their conclusion. They did not explain how much incorporation is necessary to be considered “wholesale.” What if the Hy-Brand majority had incorporated only 20 pages? How about 10 pages or three pages? They also did not explain why “almost word-for-word” was close enough or why “non-substantive modifications” did not count.REF

Another indication that this standard is inherently subjective is the repeated use of phrases such as “the practical effect,”REF “essentially,”REF and “for all intents and purposes.”REF Especially in the absence of any precedent or other authority for this “wholesale incorporation” standard, these informal phrases indicate that the conclusion is based more on impressions or casual observations than on application of an objective, reliable standard.

The third flaw in the Berry/Ketcham standard is that it creates a disturbing catch-22. Berry acknowledged that Browning-Ferris and Hy-Brand “started out as two distinct and separate matters.”REF Since neither Emanuel nor Littler Mendelson ever represented the parties in Hy-Brand, this means that he had no duty to recuse himself when Hy-Brand was assigned to him. At that point, the NLRB members’ votes had not yet been sought and the majority opinion had not even been circulated in draft form. No incorporation, wholesale or otherwise, had occurred and, therefore, these two matters had not yet become consolidated. Since consolidation by wholesale incorporation is, according to Berry and Ketcham, the basis for Emanuel’s duty to recuse, that duty did not exist when the deliberative process in Hy-Brand began.

Berry concluded that Emanuel “should have been recused from participation in deliberations leading to the decision to overturn Browning-Ferris.”REF At the same time, he emphasized that his determination was “limited to very specific facts as to what actually occurred in the deliberative process of Hy-Brand.”REF How can the conclusion that Emanuel should not have participated in the Hy-Brand deliberations be based on what happened during those deliberations?

The retroactive application of this standard—and its resulting catch-22 for Emanuel—exposes another flaw. Courts or other bodies, such as the NLRB, that explain adjudication decisions in written opinions can do so in many different ways. The Hy-Brand opinion could have been written differently. It could have referred to, rather than copied, sections of the Browning-Ferris dissent. It could have addressed the same points as that dissent but in a different order or from a different perspective. It could have incorporated only select portions of the Browning-Ferris dissent rather than doing so “wholesale.”

In this case, two days after Hy-Brand was assigned to Emanuel in October 2017, then-Chairman Philip Miscimarra provided a draft majority opinion. In an e-mail, he acknowledged that the “draft includes the ‘verbatim’ language in the joint dissent in Browning-Ferris.”REF Miscimarra was one-half of that joint dissent. Suppose that Miscimarra had, instead of that draft, sent to Emanuel a memo merely suggesting that he consult the Browning-Ferris dissent for arguments, ideas, or analysis that might be helpful in drafting his majority opinion. Suppose further that Emanuel had done so, accomplishing the same results in a shorter opinion that echoed or generally paralleled, but did not literally incorporate, the Browning-Ferris dissent. Finally, suppose that the decision in Hy-Brand did not, under any rational definition, evidence wholesale incorporation of the Browning-Ferris dissent.

Suppose that, in Hy-Brand, the Board sought to duplicate, as closely as possible, the Browning-Ferris dissent. They agreed on this objective and discussed different ways of implementing it. Suppose that the Hy-Brand majority opinion followed that plan, converting the Browning-Ferris dissent into the Hy-Brand majority. But suppose that the Board did this in substance but not in form. The majority accomplished this result without obvious or extensive duplication of text. The Hy-Brand judgment would be the same, and its effect on Browning-Ferris and future cases involving the joint-employer issue would be the same. It appears, however, that in those circumstances, Browning-Ferris and Hy-Brand would have remained “distinct and separate matters,” Emanuel would have had no duty to recuse himself, and the Hy-Brand decision would not have been vacated.

That wholesale incorporation/consolidation did not occur, at least in any final or official way, until the end of the process, when the Board’s judgment and decision became final. Berry and Ketcham, therefore, are saying that Emanuel should have recused himself at a time when he had no duty to do so because of a future condition that he could not then have known would happen, based on a previously unknown and unsupported standard.REF

Conclusion

The Ethics Pledge is a guide for those appointed to lead agencies in the performance of their duties. The pledge is straight-forward. It requires recusal in “a particular matter involving specific parties that is directly and substantially related to my former employer or former clients.” In this case, neither William Emanuel nor his former employer, Littler Mendelson, had ever represented the parties in Hy-Brand v. Industrial Contractors, Ltd. and, therefore, Emanuel had no obligation to recuse himself.

That conclusion is not affected by the fact that, in Hy-Brand, the NLRB reconsidered the definition of “joint employers” established in a previous case, even though Emanuel’s former law firm represented one of the parties in that case. Nor is it affected by the Board’s conclusion that the Browning-Ferris decision, or the joint-employer standard on which it was based, should be overruled. Nor is it affected by how the Board reached or expressed that result, by issuing an opinion drafted in a particular way.

The standard employed by the NLRB Inspector General and Designated Agency Ethics Official to find otherwise is without any known legal basis and has no identified precedent. It is inherently subjective, undefined, and retroactive, creating an untenable catch-22 for officials to whom it is applied. In effect, they concluded that Emanuel should have recused himself at the start of the Hy-Brand case because of the way that the Board’s decision would be explained at the end of the case.

The Ethics Pledge is focused on discreet cases and specific parties, not issues that might surface in subsequent cases or by agency decisions made in other cases. Emanuel did not violate the Ethics Pledge by participating in Hy-Brand and, by applying their novel and flawed recusal standard, Berry and Ketcham unnecessarily cast Emanuel in a negative light. Nothing in the Ethics Pledge, the facts of this case, or basic logic compels or even justifies this result.

—Thomas Jipping is Deputy Director of the Edwin Meese III Center for Legal and Judicial Studies and Senior Legal Fellow, of the Institute for Constitutional Government, at The Heritage Foundation.

Authors

jippingt
Thomas Jipping

Deputy Director, Center for Legal and Judicial Studies