Circuit Courts Appear to Differ Regarding Constitutional Challenges to the NLRB

Following a multi-million-dollar ruling against it by the National Labor Relations Board (“NLRB”), nursing home operator Care One, LLC, is now challenging the authority of NLRB-appointed Administrative Law Judges (“ALJs”) on constitutional grounds before the Second Circuit Court of Appeals. The Second Circuit’s line of questioning during the November 12, 2024, oral argument revealed the Court’s apparent skepticism towards Care One’s challenges, creating the prospect of a circuit court split on key issues that are likely to make their way to the Supreme Court. Care One’s arguments follow the trend over the past several years of employers increasingly questioning the authority of ALJs to adjudicate their labor and employment claims before administrative agencies.

Background of Care One, LLC, et al. v. National Labor Relations Board

In 2012, the NLRB instituted proceedings against Care One and affiliated entities. The various proceedings were consolidated and assigned to ALJ Kennth R. Chu.

Care One now challenges the constitutionality of Mr. Chu’s appointment to the NLRB. Specifically, as the company outlined in its appellate brief, President Obama attempted to make three “recess appointments” in January 2012 during a three-day recess between pro forma sessions of the U.S. Senate. Thereafter, in July 2012, the NLRB appointed ALJ Chu, who began presiding over the Care One proceedings. However, as the company highlights, the January 2012 recess-appointments were never confirmed, and President Obama withdrew the pending appointments in July 2012, replacing them with Senate-confirmed appointees. In July 2014, the Supreme Court held that the January 2012 recess appointments were unconstitutional. See NLRB v. Noel Canning, 573 U.S. 513, 521 (2014).

Based on this procedural history, Care One’s arguments are two-fold: (1) ALJ Chu has been presiding over the proceedings while unconstitutionally insulated from the President’s removal power, and (2) ALJ Chu was appointed by an unconstitutionally appointed Board, making his appointment was unconstitutional.

Why is Care One raising these arguments now, after more than a decade of litigation proceedings before the NLRB?  The company argues that it was precluded from raising these constitutional “defects” before April 2023 because, until that time, the NLRA’s statutory scheme permitted judicial review of only final Board orders, and thus Care One was required to wait until a final appealable judgment had been issued. That procedural hurdle evaporated, Care One argues, following the Supreme Court’s decision in Axon Enter., Inc. v. Fed. Trade Comm’n, 598 U.S. 175 (2023), in which the Court held that district courts have jurisdiction to hear parties’ collateral constitutional challenges to ongoing administrative enforcement proceedings where the challenge is to the very nature and existence of the proceeding itself.

Care One filed a request for a preliminary injunction, which the District Court denied in October, 2023, finding that Care One failed to demonstrate its likelihood of success on the merits. The company then initiated the instant appeal.

The Oral Argument

During the oral argument before the Second Circuit, Care One’s counsel argued that the company suffered “irreparable harm” by “being subjected to an illegitimate proceeding before an illegitimate tribunal,” and that ALJ Chu’s appointment “tainted” the Board’s entire proceeding. The panel seemed reluctant to accept the arguments, pointing out, for example, that the case is now before the NLRB, and not before ALJ Chu. Given that the NLRB is properly constituted, and the NLRB can conduct a de novo review, the panel questioned how the entire proceeding could be tainted. Further, the panel seemed reluctant to accept the company’s plea of irreparable harm, asking, “if it can be fixed on appeal, how is [the harm] irreparable?” Counsel attempted to argue that “being subject to the proceeding is, in itself, irreparable harm.”

In response, counsel for the NLRB seized on the judges’ line of questioning, arguing that the issues raised by Care One ALJ Chu’s appointment are irrelevant, because the case is now before the NLRB, and ALJ Chu is no longer involved. The NLRB also argued that Axon does not provide the Court with jurisdiction over this matter; rather, Axon only provides district courts jurisdiction to resolve constitutional challenges to the agency’s structure. Care One’s claims, the NLRB argued, challenge only a handful of ALJs, falling short of a challenge to the “structure” of the Board. The Second Circuit’s ruling on this issue will undoubtedly be instructive for at least some other circuits facing similar arguments. 

Similar Cases in the Fifth Circuit

As we reported previously, the NLRB is facing similar challenges in lawsuits across the country, including in cases recently filed by Amazon.com Inc. (“Amazon”) and Space Exploration Tech (“Space X”). Both companies have cases pending before the Fifth Circuit, in which they argue, in relevant part, that (1) NLRB ALJ’s are impermissibly shielded from removal by the President, and (2) allowing NLRB ALJs to adjudicate private rights beyond equitable backpay permitted by the NLRA violate the Seventh Amendment right to a trial by jury.

SpaceX, Amazon, and Care One’s arguments all rely heavily upon the Supreme Court’s holding in SEC v. Jarkesy, in which the Court found that parties subject to administrative action that may result in a civil penalty have a Seventh Amendment right to a jury trial. And, while the Supreme Court did not opine on this precise issue, the Fifth Circuit Court of Appeals in Jarkesy held that the statutory removal restrictions for SEC ALJs violate Article II of the Constitution. Thus, the companies argue, that the same holding should apply to NLRB ALJs.

SpaceX and Amazon’s respective oral arguments were focused largely on procedure rather than on the merits of the constitutional arguments; thus, it is unclear whether the Fifth Circuit will reach those constitutional questions in its ruling. Still, while the Second Circuit seemed skeptical of Care One’s arguments, SpaceX and Amazon may have more luck before the Fifth Circuit, where Jarkesy originated.

Should there ultimately be conflicting holdings amongst circuits, this issue may make its way to the Supreme Court. And, while the NLRB’s current general counsel described it as “nothing new for big companies to challenge the authority of the NLRB to enforce workers’ rights so as not to be held accountable for their violations,” the NLRB’s position and focus is certain to shift under the incoming Trump Administration.