April 2016 FBA Labor and Employment Law Third Circuit Update

Posted on Wednesday, May 18th, 2016.

April 2016 FBA Labor and Employment Law Third Circuit Update


Stephen E. Trimboli, Esq.

Trimboli & Prusinowski, L.L.C.

The National Labor Relations Board validly ratified the appointment of a Regional Director whose initial appointment was invalid due to the absence of a valid Board quorum, and that Regional Director, in turn, validly ratified a union election that had been conducted originally during his period of invalid appointment.


Advanced Disposal Services East, Inc. v. National Labor Relations Board __ F.3d __ (3d Cir. 2016), 2016 WL 1598607, C.A. 3, (NLRB/Phila. Region #4), April 21, 2016, available at www2.ca3.uscourts.gov/opinarch/152229p.pdf


Advanced Disposal Services East, Inc. operated three facilities within the Philadelphia region, Region No. 4, of the National Labor Relations Board.  A secret ballot election was conducted among the proposed bargaining unit of 120 full-time and regular part-time drivers, helpers and mechanics employed at the three facilities on April 16 and 17, 2014.  The employees voted for union representation by a vote of 60 voters in favor and 58 opposed.  Advanced challenged the election outcome, but its objections were overruled following a hearing.  Because election determinations are not appealable, Advanced was required to refuse to bargain with the now-certified union in order to preserve its appeal rights.  Region No. 4 Director Dennis Walsh filed a Complaint and Notice of Hearing on February 19, 2015, seeking to enforce the union’s certification and force Advanced to bargain.  A three-member panel of NLRB ultimately issued a decision and order on May 8, 2015, finding that Advanced had unlawfully refused to bargain with its employee’s majority representative, effectively rejecting again Advanced’s challenge to the election.  Advanced petitioned the Third Circuit for review and the NLRB cross-applied for enforcement.


On appeal, however, Advanced raised an issue that it had not raised below.  Advanced argued that because Director Walsh had been appointed at a time at which the NLRB itself lacked a valid quorum, his appointment was itself invalid, thereby rendering his conduct of the election invalid under NLRB v. Noel Canning, _ U.S. _, 134 S. Ct. 2550 (2014).  In response, the NLRB argued that Advanced had forfeited its right to challenge Director Walsh’s authority by not raising the issue prior to the representation election, that Advanced’s execution of a stipulated election agreement constituted a waiver of its right to challenge Director Walsh’s authority, and that the actions Director Walsh had originally taken were subsequently ratified by the NLRB and by him.  The Third Circuit addressed each of these “novel questions.”


The Third Circuit first rejected the NLRB’s argument that Advanced had forfeited the right to challenge Director Walsh’s authority by not raising the issue in a timely fashion.  “[We] hold that a challenge like this one, which goes to the authority of the Board to act, constitutes a ‘extraordinary circumstance’ under [29 U.S.C. Section 160(e)] and can thus be raised for the first time on appeal.”  In normal circumstances, a court of appeals has no power to strike a portion of any NLRB order if no objection had previously been raised to it before the NLRB, and the failure to object is not excused by extraordinary circumstances.  In holding that extraordinary circumstances existed, the Third Circuit followed the lead of the D.C. Circuit in SSC Mystic Operating Co., LLC v. NLRB, 801 F.3d 302, 308 (D.C. Cir. 2015), and UC Health v. NLRB, 803 F.3d 669, 672-73 (D.C. Cir. 2015).  These cases held that challenges to a Regional Director’s authority also implicate the power of the Board to act and thus constitute extraordinary circumstances.  Like Advanced, the employers in the two D.C. Circuit cases had challenged the ability of a Regional Director to conduct an election because, at the time of the election, the NLRB lacked a valid quorum as a result of the Supreme Court’s Noel Canning decision.  The Third Circuit rejected a contrary holding of the Eighth Circuit in NLRB v. RELCO Locomotives, Inc., 734 F.3d 764 (8th Cir. 2013).  The lack of a quorum is not merely a procedural technicality or a mere affirmative defense, but “goes to the authority of the Board to act.”  Further, as a policy matter, it would be “passing strange” for an ultra vires agency action to be “insulated from judicial review,” citing Teamsters Local Union No. 455 v. NLRB, 765 F.3d 1198, 1201 (10th Cir. 2014) (allowing appellate review in a different context).


With respect to the stipulated election agreement, the Third Circuit again followed the lead of the D.C. Circuit and rejected the Board’s waiver argument.  Nothing in the stipulated election agreement constituted an explicit acceptance of the Board’s authority to act, and the Board could not point to any language in the agreement stating that Advanced affirmatively acceded to Walsh’s authority. Further, the Board cited no judicial authority for the proposition that a party is estopped from attacking the propriety of an election to which it has expressly agreed, and the Board’s own case law on point is currently under review in the D.C. Circuit.


However, the Third Circuit found that both the Board and Director Walsh had cured through ratification any defect in authority they may have had to take action against Advanced in this matter.  Specifically, on July 18, 2014, all five members of the properly constituted NLRB adopted a general ratification of all administrative, personnel and procurement matters approved or taken by or on behalf of the Board during the period of time that it lacked a proper quorum.  The Board also took separate action expressly ratifying the selection of Director Walsh as the Regional Director for Region 4.  Thereupon, on July 30, 2014, Director Walsh affirmed and ratified “any and all actions taken by me or on my behalf during that period [in which the NLRB lacked a proper quorum], including all personnel and administrative decisions…”  Director Walsh did not specifically address any particular decisions he had made during this period of time.


The Third Circuit noted the general rule that ratification of an act purported to be done for a principal by an agent is treated as effective at the time the act was originally taken; that is, ratification relates back in time to the date of the purportedly unauthorized act by the agent.  Ratification of previously unauthorized agency action, however, presents a unique situation because the same party is both the principal and the agent.  Nonetheless, based on its precedent, the Third Circuit identified three general requirements for ratification:  (1) the ratifier must, at the time of ratification, still have the authority to take the action to be ratified; (2) the ratifier must have full knowledge of the decision to be ratified; and, (3) the ratifier must make a detached and considered affirmation of the earlier decision.  “These last two requirements are intended to ensure that the ratifier is not blindly affirming the earlier decision without due consideration.”  Ratification can either be accomplished either expressly or “implied from subsequent conduct,” such as when a later act is “necessarily have affirmation of” an earlier act.  Further, in the context of administrative agency ratification, the presumption of regularity applies, requiring that the courts give proper difference to the agency and place upon the challenger the burden to demonstrate that ratification was flawed.


The instant matter involved two separate acts of ratification: the NLRB’s ratification of Director Walsh’s appointment, and Director Walsh’s ratification of the election he conducted among Advanced’s employees.  The NLRB’s ratification of Director Walsh’s appointment easily met the three requirements of an effective ratification.  Advanced could not point to, and the Third Circuit found no, statute or regulation that would have prevented the NLRB from restarting the administrative actions in question at the time of ratification.  The NLRB claimed to have specifically considered the relevant supporting materials before reauthorizing the selection of Director Walsh, and Advanced presented no evidence to the contrary, allowing the court presume “that the Board had full knowledge of, and appropriately reconsidered, its earlier appointment of Director Walsh.”


With respect to Director Walsh’s ratification, the first and second requirements for ratification were also easily satisfied.  “There is no statutory or administrative limitation preventing Director Walsh from re-running the union election at the time he ratified it … Additionally, the knowledge requirement is easily satisfied:  Director Walsh is both the principal and the agent … he, better than anyone else, had full knowledge of his earlier actions.”


The “real question concerning Director Walsh’s ratification” arose from his issuance of a “barebones, blanket affirmation, without any specific mention of [the instant matter] or the details of any ratification process.”  However, the Third Circuit found that Director Walsh had implicitly affirmed his conduct by filing a Complaint and Notice of Hearing that alleged that Advanced had refused to bargain with the employees’ “exclusive collective bargaining representative.”  The Court reasoned that this allegation necessarily constituted the affirmation of his earlier actions in conducting the election in April of 2014.


The Court further rejected Advanced’s argument that the “implicit affirmation” theory applies only when a “re-do” of the administrative proceedings would bring about the same outcome.  Advanced specifically cited the close election result, and the possibility of a different result if the election were re-run.  In rejecting the argument, the Third Circuit reasoned, “Advanced is correct that in a close election, the whims of the electorate can easily change the ultimate outcome, but Director Walsh is not ratifying the conduct of every voter in the election; he is ratifying his own conduct in facilitating the election.”  Once that distinction is recognized, “it becomes clear that what Advanced really wants is a second shot at convincing a sufficient number of voters to oppose unionization.”  The Third Circuit did not accept that line of reasoning.


After holding in the NLRB’s favor in the issue of ratification, the Third Circuit went on to find that the determination affirming the union election was supported by substantial record in the evidence and was therefore valid.


Third Circuit follows the majority rule among federal courts and holds that second generation interest arbitration provisions contravene both the Federal Arbitration Act and the National Labor Relations Act unless each party consents to their inclusion.


Hamilton Park Health Care Center Ltd. v. 1199 SEIU United Healthcare Workers East, _ F.3d _ (3d Cir. 2016), 2016 WL 1274463, C.A. 3, (N.J.), April 1, 2016, available at www2.ca3.uscourts.gov/opinarch/152595p-1.pdf


Hamilton Park Health Care Center, a long-term care facility, and 1199 SEIU were parties to a collective bargaining agreement running from March 13, 2008 through February 28, 2013.  The collective bargaining agreement gave the union the option to reopen negotiations in November 2011 to bargain for new wages, hours and general terms and conditions of employment during the last year of the agreement.  If the union reopened the agreement and the parties could not agree to terms by February 28, 2012, the unresolved issues would be submitted to binding interest arbitration.


In interest arbitration, the parties ask the arbitrator to set new terms and conditions of employment.  In contrast, rights arbitration calls upon the arbitrator to resolve disputes involving the interpretation or application of terms and conditions of employment that the parties themselves have agreed to in their contract.


1199 SEIU exercised its right to reopen the final year of the contract, but the parties were unable to reach agreement.  1199 SEIU thereupon exercised its right to invoke interest arbitration.  One of the significant issues in dispute was a 4.5 percentage point increase in the contributions necessary to maintain the level of health benefits that employees received.  During the hearing, the interest arbitrator suggested that the parties consider allowing him to fashion a multi-year award that went beyond the scope of the one year reopener provided for under the collection bargaining agreement, thereby allowing the arbitrator to “spread out the increased employer contributions over a longer period of time.”  According to the arbitrator, the parties “tentatively” agreed to his request for expanded jurisdiction, and later confirmed this agreement in subsequent ex parte meetings.


Based on what he understood to be his expanded scope of authority, the interest arbitrator issued a multi-year award that extended the parties’ collective bargaining agreement through June 30, 2016.  The interest arbitrator included in his award a provision “allowing the union to reopen negotiations for the contract’s last year …  and to submit any resulting disputes to binding interest arbitration.”  The arbitrator thus created a so-called “second generation” interest arbitration agreement.  “As the name implies, this refers to a scenario where an arbitrator uses his authority to decide a particular dispute to impose a requirement, not previously agreed upon by the parties, to arbitrate future disputes.”  Neither party had consented to the “second generation” interest arbitration agreement, and it appears that the arbitrator included the provision simply to mirror the one year reopener that had been contained in the parties’ 2008 – 2013 agreement.


Hamilton Park filed an application in District Court under the Federal Arbitration Act (FAA), 9 U.S.C. Sec. 10, to vacate the award.  Hamilton Park argued that the arbitrator had exceeded his authority by issuing a multi-year award and by awarding a “second generation” interest arbitration provision.  The District Court rejected each of Hamilton Park’s arguments.  On appeal, the Third Circuit affirmed the determination pertaining to the multi-year award, but reversed and remanded with respect to “second generation” interest arbitration provision.


There is a strong presumption under the FAA in favor of enforcing arbitration awards, which are reviewed under an extremely differential standard.  However, the FAA gives District Courts the authority to vacate awards when the arbitrator exceeds his or her powers, or so imperfectly executes those powers that a mutual, final, and definite award upon the subject matter submitted was not made.  9 U.S.C. Sec. 10(a)(4).  An award may also be vacated if it does not draw its essence from the terms of the collective bargaining agreement; when the award results from the arbitrator’s “own brand of industrial justice;” and, when the award is contrary to “well-defined and dominant public policy.”


With respect to the multi-year award, the Third Circuit saw no basis for challenging the arbitrator’s conclusion that he had been granted the discretion to issue a multi-year award.  Parties may agree to allow an arbitrator to go beyond the express terms of the collective bargaining agreement, and Hamilton Park failed to present evidence sufficient to demonstrate that such an agreement did not exist.  Hamilton Park instead relied on the absence of any writing memorializing the agreement to authorize a multi-year award, arguing that an oral agreement would violate the collective bargaining agreement, which requires any changes to be writing and signed by authorized representatives. The Third Circuit rejected this argument: “But we have held that, once parties are in front of an arbitrator, their decision to submit additional subjects to arbitration – even though it is beyond the scope of the CBA – need not be ‘express’ and instead ‘may be based on other relevant … actions’ … indeed, an agreement to allow an arbitrator to address particular issues ‘may be implied from the conduct of the parties.’”  Further, nothing in the collective bargaining agreement prohibited the parties from agreeing to arbitrate additional issues.


The District Court had held that the arbitrator’s finding with respect to the extent of his jurisdiction was immune from challenge in court.  The Third Circuit rejected this as a statement of law.  Courts are authorized to review challenges that go to the making of the agreement to arbitrate, and can also inquire into whether an award was obtained through the arbitrator’s “dishonesty.”  But although Hamilton Park had the right under law to challenge the arbitrator’s finding of expanded jurisdiction, its arguments in that regard failed on their merits.


However, with respect to the “second generation” interest arbitration provision, the Third Circuit reached a different conclusion.


Under the FAA, arbitration is strictly a matter of contract, and the court must initially find that there is a valid agreement to arbitrate.  If a party has not agreed to arbitrate, the courts have no authority to mandate that it do so.  If there is no express agreement to arbitrate, the court must determine whether the “traditional principles of contract and agency law” can make a party nonetheless bound by an arbitration provision.


In this case, neither the collective bargaining agreement nor the oral agreement to permit a multi-year award contemplated a provision mandating the interest arbitration of future disputes.  Nor did Hamilton Park, through its conduct, imply that it had agreed to such a provision.  And neither the arbitrator nor the union on appeal “identified any principle of contract or agency law that would require a party to arbitrate in the future merely because it has agreed to do so in the past.”


The District Court had found that Hamilton Park, in agreeing to a multi-year award, never limited the boundaries of the arbitrator’s discretion, and had not objected during the arbitration process to the inclusion of the “second generation” interest arbitration provision.  According to the Third Circuit, “This gets things backwards.  Our starting principle is not parties can be forced to arbitrate unless they agree otherwise, but rather that ‘if a party has not agreed to arbitrate, the courts have no authority to mandate that [it] do so.’”  Further, there was no evidence that Hamilton Park “had any reason to suspect prior to the issuance of the award that it would contain a second generation interest arbitration provision.  A party cannot object to what it cannot reasonably foresee.”


The Third Circuit further found that the “second generation” interest arbitration provision conflicts with the public policy embodied in the National Labor Relations Act.  Interest arbitration is not a mandatory subject of bargaining.  Parties are therefore free to bargain or nor bargain, and to agree or not to agree, over interest arbitration provisions.  “However, if arbitrators were free to do as [the arbitrator] did here, parties would have no control over the continued inclusion of an arbitration provision.  This would allow for end-run around the NLRA public policy considerations.”  Indeed, if “an arbitrator, once empowered to decide a particular dispute, could then require all future disputes to be arbitrated, a party that has agreed once to a limited [interest] arbitration provision could be forever be held hostage to it.”  The use of economic force to eliminate the clause is foreclosed because the continued inclusion of the term is left to resolution by arbitrators.


Following what it termed the “overwhelming consensus of federal courts,” the Third Circuit held that “second generation” interest arbitration provisions are unenforceable under the FAA and NLRA if they are imposed without consent.  “Our deference to an arbitrator’s award does not include the rubber stamping of a self-perpetuating arbitration provision that the parties did not agree to include.”

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