NLRB properly decided that its new standard for deferring to arbitral decisions should only be applied prospectively
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Thursday, October 19, 2017

NLRB properly decided that its new standard for deferring to arbitral decisions should only be applied prospectively

By Kathleen Kapusta, J.D.

Although the Board’s usual practice is to apply new policies and standards in all pending cases at whatever stage, subject to balancing such retroactivity against “the mischief of producing a result which is contrary to a statutory design or to legal and equitable principles,” it properly determined that a new standard for deferring to arbitral decisions, which it developed in the underlying case, should only be applied prospectively, the Ninth Circuit ruled. Accordingly, the court denied an employee’s petition for review and upheld the NLRB’s decision to affirm an arbitral decision denying her unfair labor practice complaint under the previous standard. Judge Fletcher filed a separate opinion concurring in the result (Beneli v. NLRB, October 17, 2017, Huck, P.).

Fired. On the day she was fired, the forklift and crane operator and union job steward was summoned to a meeting where she was told she was being suspended for safety policy violations. When she responded by saying “[i]s this the f****** game you guys are going to play,” she was fired for inappropriate conduct. Alleging she was fired for union activities and without just cause, the union filed a grievance, which moved through the collective bargaining process to binding arbitration before a joint labor-management grievance review subcommittee. The subcommittee denied the grievance, finding just cause based on her use of profanity and insubordination.

Spielberg/Olin standard. The NLRB then issued a complaint against the company, and after a hearing, an administrative law judge recommended deferring to the subcommittee decision. The ALJ’s deferral decision was based on the Spielberg/Olin standard, long-standing NLRB precedent pursuant to which deferral to arbitral decisions is appropriate when: (1) all parties agree to be bound by the decision; (2) the proceedings appear to be fair and regular; (3) the arbitrator adequately considers the unfair labor practice issue, which requires the unfair labor practice issue and the contractual issue to be “factually parallel” and the arbitrator to have been “presented generally” with the relevant facts; and (4) the arbitration award is not clearly repugnant to the NLRA.

New standard. The NLRB General Counsel filed exceptions to the ALJ’s decision on the merits and recommended revisiting the standard for determining when to defer to an arbitral decision. In its subsequent order adopting the ALJ’s decision, the Board announced a new standard for determining whether to defer to an arbitration decision. Pursuant to this standard, the Board will now defer to an arbitral decision if the party urging deferral shows that: (1) the arbitrator was explicitly authorized to decide the unfair labor practice issue; (2) the arbitrator was presented with and considered the statutory issue, or was prevented from doing so by the party opposing deferral; and (3) Board law reasonably permits the award. This standard, observed the court, shifts the burden of proof and makes deferral to an arbitral decision less likely.

The Board applied this standard prospectively, declining to apply it in this case because of its impact on settled expectations of employers and unions who had bargained for dispute resolution mechanisms under the old standard.

Five-factor test. On appeal, the court applied a five-factor analysis adopted in Oil, Chem. & Atomic Workers Int’l Union Local 1-547 v. NLRB to balance the interests in considering retroactive application of a new standard: (1) whether the particular case is one of first impression, (2) whether the new rule represents an abrupt departure from well-established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of the burden which a retroactive order imposes on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard.

First impression. As to the first factor, the new deferral standard established the case as one of first impression, said the court, as the Board replaced the Spielberg/Olin standard that had been in effect for decades. Although this factor weighed in favor of retroactively applying the new standard, because prospective application would “deny the benefits of a change in the law to the very parties whose efforts were largely responsible for bringing it about,” the court noted the deferral standard was changed on the recommendation of the NLRB’s General Counsel, and the employee never advocated for the change. Therefore, her efforts were not largely responsible for bringing it about and the factor was entitled to lesser weight.

Abrupt departure. The new standard also represented an abrupt departure from well-established practice as it shifted the burden of proof for challenging the arbitration award to the party advocating deferral to the award and is less deferential to the arbitrator’s decision, said the court, noting that altering decades of precedent by formulating a new, more lenient test warrants prospective application, given that deference was the primary question before the ALJ and the Board.

Reliance. As to the third factor, the court noted that the employer would have relied on the Spielberg/Olin factor in formulating its decisions with regard to negotiating the CBA with the union, determining whether to oppose the union before the subcommittee, and developing and presenting its case to the subcommittee. Because it was operating under a standard that had been in place for nearly 60 years, it had no reason to ensure that the subcommittee decision met the new standard’s specific identification and explanation requirements, which also supported prospective application of the new standard.

Burden. Observing that the subcommittee hearing and decision occurred over seven years ago, the court found it undisputed that beginning a new arbitration or re-litigating the original NLRB complaint would be exceedingly difficult and burdensome given the passage of time, the closure of the employer’s worksite, faded memories, and the likely dispersal of percipient witnesses. Such a heavy burden favored prospective application.

Balance of interests. Applying the fifth factor, the court found that because the subcommittee’s decision did not include the explicit findings required under the new standard, retroactive application would necessitate new analysis by the subcommittee and an ALJ, which would undermine the binding arbitration to which the union, employee, and employer had agreed. It also would impair the “stability of labor relations [that] was the primary objective of Congress in enacting the National Labor Relations Act.” This factor also favored prospective application.

Substantive review under Spielberg/Olin. Finally, the court found the Board did not abuse its discretion when it deferred to the subcommittee decision under the Spielberg/Olin standard. The employee challenged only whether the arbitration award was clearly repugnant to the Act, the court observed, noting that an arbitrator’s decision is “clearly repugnant” to the NLRA if the decision is “palpably wrong, i.e., unless the arbitrator’s decision is not susceptible to an interpretation consistent with the Act.” Noting there was evidence that the employee’s safety violations and use of profanity, not her union activities, served as the basis for her termination, and that the subcommittee found this evidence credible, the court explained that its decision that the employee was discharged for cause was susceptible to an interpretation consistent with the Act.

Concurrence. Although Judge Fletcher concurred in the result, he dissented from the factors used by the court to review a decision of the NLRB to apply prospectively a new rule declared in an adjudicative proceeding, which address concerns of fairness arising out of retrospective application. Instead he would have addressed the prospective-only application of the new rule under the Wyman-Gordon framework, which addressed concerns of informed and deliberate agency rulemaking.

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