Sixth Circuit Rejects the NLRB’s Cemex Bargaining Order Standard

The US Court of Appeals for the Sixth Circuit held that the National Labor Relations Board (NLRB or the Board) exceeded its adjudicatory authority by issuing its Cemex decision—which dramatically changes the rules governing union recognition—without having notice-and-comment rulemaking. This decision has significant implications for employers in union organizing campaigns and, more broadly, the NLRB’s authority to implement policy and precedent changes through case adjudication.

Brown-Forman Corporation’s Woodford Reserve Distillery in Versailles, Kentucky, became the center of a unionization effort by the Teamsters union. As union support grew, Brown-Forman’s management provided a $4-per-hour raise, expanded merit-based salary increases, implemented a more flexible vacation policy, and gifted employees bottles of bourbon prior to the election.

These actions, according to the administrative law judge (ALJ), were intended to discourage unionization and ultimately led to the union’s defeat in the election (14 for, 45 against). The ALJ found violations of Section 8(a)(1) and (3) of the National Labor Relations Act (NLRA) and recommended a bargaining order, which would result in union representation without an employee election.

The NLRB adopted the ALJ’s findings but, crucially, based its bargaining order remedy solely on the new standard announced by the NLRB in Cemex Construction Materials Pacific, LLC,[1] rather than the US Supreme Court’s Gissel Packing Co.[2] standard. Brown-Forman petitioned for review of the NLRB’s decision in the Sixth Circuit, challenging both the Board’s findings and the validity of the Cemex standard.

THE SIXTH CIRCUIT’S DECISION

The Sixth Circuit affirmed the Board’s findings of unfair labor practices, including the granting of economic benefits and gifts during the election campaign, but rejected the Board’s bargaining order remedy. Morgan Lewis filed an amicus curiae brief in the Sixth Circuit on behalf of many employer organizations.[3]

The central issue was the validity of the Cemex standard as the basis for the NLRB’s bargaining order remedy. Cemex departed from the Gissel standard by failing to adequately consider whether a fair rerun election could be held. The Sixth Circuit found that the Cemex standard was unnecessary to resolve the dispute in that case, where the NLRB found that a bargaining order was justified under the Gissel standard. Therefore, according to the Sixth Circuit in Brown-Forman, the Board in Cemex exceeded its authority by creating a “general rule of broad applicability” through a case adjudication that was akin to rulemaking.

Citing Supreme Court precedents, including SEC v. Chenery Corp.,[4] NLRB v. Wyman-Gordon Co.,[5] and NLRB v. Bell Aerospace Co.,[6] the Sixth Circuit emphasized that agencies may not use adjudication to craft general rules unless those rules are necessary to resolve the specific dispute at hand. Because the Cemex standard was not necessary to resolve the dispute in that case but instead was intended to create a new policy for all future cases, the Sixth Circuit ruled that the NLRB’s use of case adjudication to promulgate the new standard was improper under the Administrative Procedure Act.

Accordingly, the court granted Brown-Forman’s petition for review, denied the Board’s cross-petition for enforcement, and remanded the case for further proceedings under the proper legal framework.

Sixth Circuit Judge Andre Mathis dissented, arguing that the Board has broad discretion to choose between rulemaking and adjudication and that the Cemex standard was properly created through case adjudication consistent with longstanding Supreme Court precedent and the NLRA.

KEY TAKEAWAYS

• The Sixth Circuit invalidated the Cemex bargaining order standard, finding it an improper exercise of adjudicatory authority.
• The Sixth Circuit rejected the NLRB’s decision to use case adjudication to establish this general rule of broad applicability, rather than notice-and-comment rulemaking.
• The Sixth Circuit did not address the other important aspect of the Cemex decision, which (1) places the burden on employers to petition for an election within two weeks after a union demands recognition based on a claim of majority support ostensibly reflected in authorization cards and (2) absent an employer-filed petition within two weeks, imposes union recognition without employees voting in an election.
• The appeal of the Cemex case is currently before the Ninth Circuit. We do not yet know if the Ninth Circuit will follow the Sixth Circuit’s decision.

IMPLICATIONS FOR EMPLOYERS

The Sixth Circuit’s opinion provides employers with a strong basis to challenge bargaining orders based on the Cemex standard. In any NLRB proceeding in which a bargaining order is sought under the Cemex standard, employers should argue that the standard is invalid for the reasons articulated by the Sixth Circuit and also because it is contrary to the Supreme Court’s decision in Gissel.

Traditionally, based on what the NLRB calls its “non-acquiescence” doctrine, the NLRB does not acquiesce to a circuit court’s decision, treating it only as the “law of the case.” But it remains to be seen how the current NLRB and its General Counsel will respond to the Sixth Circuit’s decision. In any case in which a bargaining order is sought, employers should be prepared to defend against a bargaining order under the Gissel standard as well as Cemex.

Employers should also preserve the argument that Cemex is invalid insofar as it places the burden on the employer to petition for an election if a union demands recognition based on card check. Although that issue was not presented in the Brown-Forman case, employers should preserve that argument for circuit court review in any case in which the union does not file an election petition.

HOW WE CAN HELP

In any case in which a bargaining order is sought, our team stands ready to advise employers on how to litigate the case under two alternative standards, Cemex and Gissel.

We can advise employers on how best to make and preserve the relevant arguments against the Cemex standard so they are preserved for circuit court review, if necessary.

CONCLUSION

The Sixth Circuit’s decision invalidating the Cemex standard for bargaining orders is the first of its kind. It remains to be seen whether the Ninth Circuit or other circuit courts will follow suit and push back against Cemex. It also remains to be seen how the NLRB and its general counsel will respond to the Sixth Circuit’s decision. In the meantime, employers should be prepared to defend against bargaining orders under both the Cemex and Gissel standards.