January 30, 2013Client Alert

Unconstitutionality of Recess Appointments Has Far Reaching Repercussions on Labor and Financial Issues

Noel Invalidates Hundreds of NLRB Decisions and Rules


In the case of Noel Canning v. NLRB, No. 12-1115 (January 25, 2012), a three-judge panel for the United States Court of Appeals for the District of Columbia unanimously held that President Obama’s recess appointments of three members to the National Labor Relations Board (NLRB) were unconstitutional because the Senate was not actually in recess at the time the President made the appointments. The challenge to these appointments was made by an employer that claimed a decision issued against it by the NLRB last year was not valid because the NLRB did not have the three-member quorum required by the National Labor Relations Act (NLRA) to issue the decision1.


The Recess Appointments Clause of the United States Constitution provides, "… the President shall have the Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session." The Court of Appeals held that the Senate is not "in recess" unless it is not "in session." Only the period between one Congressional session and the next is a "recess" during which the President may make appointments without the Senate’s advice and consent. The Court concluded that there can be no constitutionally valid appointments under the Recess Appointments Clause where the Senate is in session but adjourned and only convening "pro forma," as it was on January 4, 2012, when the President made the appointments. The Court did not mince words. It held that "permit[ting] the President to decide when the Senate is in recess would demolish the checks and balances inherent in the advice-and-consent requirement," and would give the President "free rein to appoint his desired nominees at any time he pleases, whether that time be a weekend, lunch, or even when the Senate is in session and he is merely displeased with its inaction."


While finding the Senate was not "in Recess" is enough to find the President’s appointments unconstitutional, the Court also held that the vacancy to be filled by recess appointment must "happen" at the time the Senate is in recess. The Court relied on both originalist and strict constructionist principles in its interpretation of the U. S. Constitution. The Court’s decision dedicated over 15 pages to define the term "the Recess" and over 14 pages to define the phrase "Vacancies that may happen during the Recess."


The NLRB can now either seek en banc review by all judges comprising the Court of Appeals of the District of Columbia or proceed to the United States Supreme Court. We believe it is more likely that the NLRB will go to the Supreme Court, given that the Noel Canning decision marks a split with the Eleventh Circuit in the case of Evans v. Stephens, 387 F.3d 1220 (11th Cir. 2004), cert. denied, 544 U.S. 942 (2005), which construed the word "recess" more broadly. Also, the political makeup of the D. C. Circuit Court may give the Obama Administration pause and make the Supreme Court option better. The Obama Administration could also opt to not appeal. Time will tell.


The repercussions of Friday’s decision are significant and potentially far-reaching for employers. The decision casts a cloud of uncertainty over the NLRB and its recent activity. All of the NLRB’s rulemaking and the more than 200 decisions it issued from January of 2012 forward are now subject to challenge by employers. By the Noel Canning logic, all these rules and decisions are invalid, given that the NLRB was operating without the required three-member quorum. This includes decisions concerning an employer’s right to terminate employees complaining about the company on social media and whether employers are required to continue collecting union dues after a labor contract expires. The rules issued by the NLRB during this time period that may be invalid include rules allowing the certification of multiple "micro bargaining units," the Poster requirement, and the expedited union organizing election rules.


Commentators are also questioning whether NLRB decisions and rules going back further are now in doubt – to those involving the recess appointment of former Board Member Craig Becker. Mr. Becker was a "recess appointment" by the President under the same circumstances as the Noel Canning recess appointments. Thus, the NLRB may have lost its quorum back on August 27, 2011 (when former Chair Leibman left), and decisions or rules where Member Becker was one of three members voting may now be subject to challenge. To say that the NLRB’s jurisprudence and rulemaking since August 27, 2011 is legally suspect, is an understatement. There are currently several other cases which address the issues raised in Noel. It is possible that other courts will rule differently. The Chair of the NLRB noted as much.


Beyond Labor Policy, Recent Financial Regulations Are Also Suspect


The impact of the Noel Canning decision may also extend well beyond NLRB matters and into the President’s appointment of Richard Cordray as the interim Director of the Consumer Financial Protection Bureau (CFPB), made on the same day as the NLRB appointments invalidated by the decision. A challenge to both the constitutionality of Cordray’s recess appointment and the CFPB itself is currently pending before the D.C. District Court2. The CFPB’s authority to promulgate new regulations is conditioned upon having a Director. Therefore, current rulemaking regarding certain non-bank consumer finance markets, including debt collection and prepaid cards, may be put on hold until Cordray’s recess appointment is confirmed by the Senate. Noel Canning may also have a detrimental impact on CFPB enforcement actions. The CFPB recently reached settlement agreements with several credit card companies regarding allegedly deceptive marketing practices. These settlements may be subject to challenge if Cordray’s appointment is invalidated.


However, Friday’s decision is unlikely to nullify every action undertaken by the CFPB to date, even if found to apply to Cordray’s appointment. The CFPB’s authority to regulate large banks and many non-bank consumer financial companies under Dodd-Frank was largely transferred from other agencies, so CFPB enforcement of laws that pre-dated Cordray’s appointment will likely go unchallenged. Moreover, even if Cordray’s appointment were found unconstitutional, CFPB legislation and enforcement actions that occurred during his tenure may be upheld under the "de facto officer doctrine," which states that the actions taken by the head of an agency may stand even if the appointment is found to be illegal.


Michael Best will continue to monitor these issues and will provide updates of further developments including challenges to NLRB decisions and rulemaking on the same grounds as Noel Canning and impacts on the financial markets given the CFPB’s status.


1 See New Process Steel, L.P. v. NLRB, 130 S.Ct. 2635 (2010)

2 See State National Bank of Big Spring v. Geithner, Case Number 12-CV-01032


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