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Democrats Sharpen Legal Attack on Labor Board Rule Outsourcing

Sept. 17, 2019, 5:22 PM

Democratic leaders on a House labor panel are accusing the National Labor Relations Board of flouting federal laws that govern administrative policy making in its push to establish a more business-friendly “joint employer” policy.

The board is currently relying on a private-sector contractor to help review public comments on a proposed rule that would limit liability for franchisers and companies that use contractor labor. That poses a conflict of interest problem, according to Reps. Bobby Scott (D-Va.) and Frederica Wilson (D-Fla.), because the contractor, Ardelle Associates, Inc., belongs to a pair of trade associations urging the board to adopt the proposal.

The board is also violating a regulation against outsourcing “inherently governmental functions,” and may have broken a federal law that bars agencies from pre-determining the outcome of a rulemaking, Scott and Wilson said in a Sept. 10 letter obtained by Bloomberg Law. The letter to NLRB Chairman John Ring (R) was initially reported by ProPublica.

“The NLRB’s selection of Ardelle Associates runs afoul of the” Federal Acquisition Regulation’s “directive ‘to avoid strictly any conflict of interest or even the appearance of a conflict,’” the lawmakers wrote. The contract “also raises the question of whether any final rule is tainted by Ardelle Associates’s conflict of interest.”

The latest allegation from lawmakers may make it even more likely that the agency’s eventual rule will face a court challenge. It also adds to a contentious political fight over the Republican-majority board’s effort to overturn a central element of the Obama labor agenda—an effort that’s previously been slowed by conflict-of-interest concerns related to one NLRB member’s prior work as a corporate lawyer.

Opponents of the new rule will have a tough time stopping it in court based on Ardelle’s involvement, Richard Pierce, an administrative law professor at George Washington University, told Bloomberg Law. It’s not unheard of for agencies to contract out the portions of the process the lawmakers discussed in their letter, and the circumstances here would make for “a weak case in court,” Pierce said.

It’s “almost impossible to win an argument that an agency is unduly prejudiced in the context of a rulemaking,” he said. “The standard is whether the evidence establishes that the agency has ‘an unalterably closed mind’ on an issue in a rulemaking. No one has ever won through application of that standard to a rulemaking.”

But the dispute could give Democrats leverage to demand additional disclosures from the NLRB about the rulemaking process behind the scenes, which could then be used to support a broader legal challenge. Opponents are expected to eventually argue in court that the rule is “arbitrary and capricious,” in violation of the Administrative Procedure Act.

The NLRB and Ardelle didn’t respond to questions about the lawmakers’ missive.

Ardelle—which has won contracts with other federal agencies—was hit with a labor complaint by the NLRB in 2014, although it appears to have settled the case.

Lawsuit Likely, But a Long Shot

The NLRB’s decision to outsource some components of the regulatory process previously drew a warning from Democratic lawmakers. They said the agency was taking on the risk that companies that have an interest in the eventual policy would be improperly involved in the rulemaking.

NLRB Chairman Ring assured the panel in March that the contractor would mostly take on “the initial sorting and coding” of comments, while the agency’s experts would handle the substantive review.

But Scott and Wilson said in the latest letter that Ardelle’s work included summarizing the content of comments, and suggested that the task is inherently governmental. They also said the NLRB has yet to provide a legally required written determination that Ardelle is not performing inherently governmental work.

Ardelle is a member of two trade organizations that “submitted comments in support of the NLRB’s proposed rule,” Scott and Wilson added. The company is therefore barred from working on the rule by acquisition regulations, they said.

The lawmakers’ allegations may not win the day in court, but they could create “pressure points to justify broader disclosures,” Hiba Hafiz, a Boston College professor who focuses on labor and administrative law, said. That could help uncover information to bolster a wider legal attack.

“Successful challenges to the final rule will likely have to come through broader substantive challenges to the rule as ‘arbitrary and capricious,’ but working in procedural challenges can buttress those substantive challenges in important ways down the road,” Hafiz said.

Bumps in Road to New Joint Employer Rules

The NLRB has been working steadily to reverse a long list of rulings and precedents that President Donald Trump’s appointees view as excessively pro-labor.

Agency heads have prioritized reversal of the current joint employer rule, an Obama-era precedent that made it easier to penalize companies that rely on subcontractors or franchisees for labor law violations. Republican lawmakers, franchisors, and business community advocates say that approach makes companies potentially responsible for labor violations against workers over whom they have little or no control.

The NLRB’s three Republican members have fielded allegations that they’ve prejudged the issue.

A case decision that would’ve changed the current “joint employer” policy had to be withdrawn after member William Emanuel (R) was found to have a conflict of interest because the ruling would have effectively decided a separate case that his old law firm was involved in. The board then began working to write regulations that would limit joint employment, and allow companies more leeway to establish relationships involving another business’ workers.

Democrats, including presidential contenders Sen. Elizabeth Warren (D-Mass.) and Sen. Bernie Sanders (I-Vt.), have since said that the agency pivoted in order to evade the ethical restrictions that ensnared Emanuel and caused it to nix a case-decision.

To contact the reporter on this story: Hassan A. Kanu in Washington at hkanu@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com