Is the NLRB hearing structure also an unconstitutional denial of the right to jury trial?
Last month we highlighted the recent demise of the Chevron doctrine, where in its June 2024 Loper case the Supreme Court reversed 40 years of deference to federal agency decisions.
A second new Supreme Court case casts doubt on whether the National Labor Relations Board can use its administrative law judges or even the Board to decide some cases under the NLRA without violating a party’s right to jury trial under the U.S. Constitution’s Seventh Amendment.
The case is titled Securities and Exchange Commission v. Jarkesy et al., decided by the Court’s conservative majority on June 27, 2024 and authored by Chief Justice Roberts. Although the NLRB is not directly involved in the case, the court’s decision casts at least some doubt on the legality of the internal NLRB hearing process.
After the Wall Street Crash of 1929, Congress passed The Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. These statutes are anti-fraud laws that outlaw misrepresenting or concealing material facts in securities transactions.
Congress created the Securities and Exchange Commission (SEC) to enforce these anti-fraud statutes.
The SEC can bring an enforcement action in one of two ways: 1) By filing suit in federal court, or 2) adjudicating the case itself in-house.
When the SEC files suit in federal court, a jury finds the facts and a federal judge determines the law. But when the SEC retains a case in-house, there are no juries. The SEC presides over the case, while its enforcement division acts as the prosecution. The SEC, usually by delegating to an administrative law judge (ALJ), finds the facts and decides the case.
Sounds a little like the NLRB…right?
But there is a big difference between the enforcement powers of the NLRB and the SEC. The SEC can levy civil penalties, or monetary fines, under the antifraud statutes cited above and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The NLRB cannot fine a violator, and if a money reward is ordered it must be of the “make-whole” variety.
The SEC’s civil penalties vary according to the severity of the violation, and are intended to penalize fraudulent conduct and recidivism, among other things. They are not “make whole” remedies. In fact, the SEC can even keep the money if it so chooses. In Jarkesy, the court wrote, “Such relief… is designed to punish or deter the wrongdoer rather than solely to ‘restore the status quo.’”
In the Jarkesy case, the SEC opted to file a Dodd-Frank Act fraud case against Mr. Jarkesy and his investment firm in-house.
In a concurring opinion, Justice Gorsuch (joined by Justice Thomas) wrote, “There is little mystery why. The new law (Dodd Frank) gave the SEC’s Commissioners – the same officials who authorized the suit against Mr. Jarkesy – the power to preside over his case themselves and issue judgment.” Acknowledging that the SEC used an ALJ, Gorsuch wrote that, “…they remain servants of the same master—the very agency tasked with prosecuting individuals like Mr. Jarkesy….Going in, then, the odds were stacked against Mr. Jarkesy.”
The Jarkesy court majority held that cases alleging fraud, where civil penalties can be levied, are akin to common law fraud cases that are historically within the jurisdiction of the federal courts. Therefore, the right to jury trial is guaranteed and cannot be abridged by statute or rule.
So does the NLRB have the right to use its internal ALJ and Board hearing processes when an unfair labor practice is filed or a union election is contested?
Those decisions may turn on complex legal analyses that are beyond the scope of this blog.
Suffice it to say that where Loper removed deference to Board decisions, Jarkesy casts doubt on whether certain Board charges can even proceed under the Board’s internal structure.
Although the Board can only order “make-whole” monetary remedies, the current Board is stretching “make whole” to include any and all potentially foreseeable harms that may have resulted from unfair labor practices. If these remedies get too far fetched in the eyes of a court, might they be viewed as penalties?
Many of the rights conferred upon parties covered by the NLRA are purely creatures of statute with no common law counterparts. For example, I doubt you could find a common law right to compel collective bargaining, a right to engage in protected concerted activity around union organizing activities, or a right to a union election.
But the court’s language in Jarkesy sends stern warnings to any agency regarding the sacred right to a jury trial as embodied in the 7th amendment.
The Jarkesy court noted, “…The right to trial by jury is ‘of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right’ has always been and should be scrutinized with the utmost care. Dimick v. Schiedt, 293 U.S. 474. 486.”
The court addressed the framing of the U.S. Constitution and the adoption of the 7th Amendment right to a jury trial, writing, “In so doing, they ‘embedded’ the right in the Constitution, securing it ‘against the passing demands of expediency or convenience.’ Since then, ‘every encroachment upon it has been watched with great jealousy.’ (Citations omitted)
If there is a reasonable doubt as to whether a NLRA claimant is entitled to a jury, the court makes it clear that it will be resolved in the light most favorable to the 7th Amendment’s right to jury trial.
Justice Sotomayor, joined by Justices Kagan and Jackson, wrote a lengthy dissent from the majority’s decision. She noted that Congress has authorized agency adjudicators to find violations of statutes and award civil penalties throughout the nation’s history. “…Congress has enacted more than 200 statutes authorizing dozens of agencies to impose civil penalties for violations of statutory obligations. Congress had no reason to anticipate the chaos today’s majority would unleash after all these years.”
And chaos it shall be. The Supreme Court’s continued assault on agency powers will act as a litigation accelerant as affected parties scramble to get their positions carved into the changing legal landscape.
Of course, these unsettling legal decisions have an adverse affect only upon parties who are accused of violating laws in the first place.
Leaders from the front lines to the C-suite need to know how to create and grow engaged, productive workforces where the requirements of the NLRA and other governing laws are recognized, valued and upheld.
That’s where MARC’s training and consulting services can set you up for success and mitigate the risk of extended legal challenges.
Please reach out to Marc Inc Vice President Gary Kleckner, and see what our training and consulting services can do for your company!
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