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Impending Threats to the NLRB: Anti-Union Corporations and SEC v. Jarkesy

Susanna Prieto

Edited by Casey McKee, Jia Lin, and Vedanth Ramabhadran


Space X’s recent attack on the National Labor Relations Board (NLRB) inspired a worrying trend in other major corporations. Their lawsuit was a bold response to the current union activity in the United States, emerging from frustrations surrounding corporate limitations enforced by the NLRB. Legal victory for SpaceX, Trader Joe’s, and Amazon would come at the expense of established legal protections for unions and employees. Though SpaceX failed to assert the NLRB’s unconstitutionality, the federal agency is still under threat given the anti-agency attitude of the Supreme Court and the possible implications from SEC v. Jarkesy. 


Examining the NLRB’s Claim Against SpaceX

SpaceX, founded by Elon Musk in 2002, is working to reduce the cost of space travel. Musk, also the chief executive officer, aims to put humans on Mars. [1] While Musk’s company has achieved impressive scientific breakthroughs, some of his employees are extremely dismayed. In June 2022, SpaceX workers drafted and circulated a letter condemning a collection of Musk’s tweets beginning in 2020. The letter argues some of these posts were sexually suggestive. [2] The CEO took to his recently acquired social media platform, X, to publicly make light of a report from Business Insider. The site claimed that SpaceX paid a $250,000 settlement to an employee who accused Musk of sexual misconduct. [3] The letter referred to Musk’s recent behavior as “a frequent source of distraction and embarrassment.” Some employees were concerned about company image and values. Given the CEO’s prominence, the employees argued: “every tweet that Elon sends is a de facto public statement by the company.” The letter continues: “it is critical to make clear to our teams and to our potential talent pool that his messaging does not reflect our work, our mission, or our values.” The document contained demands for the executives, calling the company to publicly condemn “Elon’s harmful Twitter behavior.” The employees requested clear definitions of unacceptable behaviors and consistent policy enforcement.  Moreover, workers urged the rocket company to “swiftly and explicitly separate itself from Elon’s personal brand.” [4] While it is unclear how many employees supported this letter, SpaceX executives took decisive action. The five employees who wrote the letter were fired one day after its circulation. SpaceX swiftly called a meeting, led by Vice President Jon Edwards. According to two SpaceX workers in attendance, Edwards announced the employees had been fired for taking on the CEO and distracting the company. Five more employees were fired in the next two months. [3] While the intent of the letter is still disputed, the employees claim wrongful termination. 

 These dismissed workers pursued legal action, leading the National Labor Relations Board to file a claim against SpaceX for violating the National Labor Relations Act. This Act, established in 1935, protects the fundamental right to seek designation of representation and improved working conditions in private-sector workplaces. [5] According to the NLRB, the rocket company violated a variety of sections, including Section 8a, in which workers have the right to come together to advance employee interests. [6] According to the Act, it is illegal for employers to “interfere with, restrain, or coerce employees in the exercise of their rights,” namely the right to self-organize and to engage in concerted activities for mutual aid, protection, or collective bargaining. [5] The Board alleged that SpaceX illegally surveilled, interrogated, and punished workers. According to the agency, company management admitted the workers were fired because of their involvement with the letter, and restricted others from circulating it while threatening to fire other employees engaging in collective action. [7] This was not the first time the Board has been at odds with Musk’s company. SpaceX has had a total of thirteen cases filed against them from the NLRB, with the first filed in September 2022 and the most recent filed on March 5, 2024. [8]


SpaceX Threatens the NLRB

In response to this charge, SpaceX filed a lawsuit challenging the legitimacy of the National Labor Relations Board. Though there have been decades of court precedent upholding the constitutionality of the Board, SpaceX alleged that the federal agency was unconstitutional for three reasons. First, SpaceX argues that administrative law judges (ALJs) and members of the Board do not have proper presidential oversight. According to Section 3 of the NLRA, members of the Board may only be removed by the President in the case of malfeasance in office or neglect of duty. [5] In Humphrey's Executor v. United States, the Court established Congress’s constitutional right to create independent agencies run by expert members who may only be fired if there is good cause to do so. [9] This agency structure was affirmed but limited by Seila Law LLC v. Consumer Financial Protection Bureau, in which this precedent did not extend to an independent agency that has substantial executive power with a single director. This would have been inconsistent with the Constitution, which prevents the concentration of power in an individual, notably exempting the President. [10] Though the Board does not operate with a single director, the rocket company argues that the agency is not independent, as it exercises “substantial executive power,” thereby infringing on the Executive powers established by the Constitution. [11][12] However, the majority opinion in Siela Law characterized executive power as prosecuting crimes and imposing fines. Comparatively, NLRB members can only make judgments of bipartisan groups of experts and order restorative remedies. [11] 

The aerospace company also alleged that NLRB proceedings are a violation of the Seventh Amendment, which establishes the constitutional right to a trial by jury. Stern v. Marshall affirmed that agencies can utilize administrative proceedings to adjudicate “public rights,” including rights granted by a federal regulatory agency. [11][13]  By this ruling, NLRA-given labor rights can be adjudicated by the Board. In 2022, the NLRB ruled against Thryv, Inc., and established that the make-whole remedies typically granted by the Board include “out-of-pocket medical expenses, credit card debt, or other costs that are a direct or foreseeable result of the unfair labor practices.” [14] SpaceX argues that the new remedies granted change the Board proceedings into “traditional legal claims,” meaning they would call for a trial by jury. [11] 

In a unique and final argument, SpaceX claims that the Board violated the separation of powers by mixing judicial, executive, and legislative functions. This argument rests on the Board’s procedure for obtaining temporary court orders against companies and employers like SpaceX. Before the NLRB can take the claim to federal court, the agency has to approve the general counsel’s petition to seek 10(j) injunctions, which are named after the NLRA section and subsection that allows the NLRB to submit the petition. [15] More specifically, “ SpaceX said board approval of 10(j) petitions conflicts with the constitutional right to due process, in part because of the “risk that such NLRB members will be psychologically wedded to the position when they adjudicate the administrative complaint.” Additionally, the NLRB violates the separation of powers because it can use quasi-prosecutorial authority to bless a 10(j) petition in the same case that it uses quasi-judicial power to rule and quasi-legislative force to issue new interpretations of the law in a precedential decision, according to the suit.” [15] However, many federal agencies require similar quasi-legislative and quasi-judicial functions to perform their duties.

SpaceX filed the case with the US District Court in Brownsville, Texas. The rocket company has a facility in Brownsville, and their legal team argued that the result of the lawsuit would affect the employees in Texas.  However, District Judge Rolando Olvera wrote: “The case “concerns a California administrative proceeding regarding the actions of a California company and its California employees in California.” For this reason, the Judge ruled that the case be heard in California. [16] While SpaceX appealed, requesting that the 5th Circuit intervene, the circuit court affirmed the lower court’s decision. [17] While it seems that the case will not be heard in Texas courts, and has not yet been heard in California, SpaceX is continuing to fight for Texas jurisdiction. [18] Though Musk’s attack on the NLRB has been stalled, the lawsuit has been supported, either through supporting briefs from prominent corporations. Trader Joe’s, Amazon, and Starbucks– all with many NLRB claims filed against them– have filed lawsuits with similar arguments against the constitutionality and legitimacy of the federal agency. [12] 


A Similar Threat in SEC v. Jarkesy

Another case with the potential to substantially weaken the National Labor Relations Board springs from a dispute with the Security Exchange Commission (SEC). This independent government agency enforces laws preventing market manipulation. The SEC pursued civil enforcement action against George Jarkesy Jr., manager of the John Thomas Capital Management Group hedge fund. [19] The federal agency accused him of violating several federal security laws and committing fraud. After the SEC’s administrative proceeding, Jarkesy was found liable and ordered to pay $300,000 in fines and give up $700,000 of illegal profits. [20] The decision was vacated by the Fifth Circuit Court of Appeals. The Court sided with Jarkesy on his Constitutional challenges to the SEC, which were similar to the arguments used in Musk’s attack on the NLRB. [21] [22] Though Jarkesy also argued that the role of administrative law judges is unconstitutional given their protections from removal, the Supreme Court is focused on the claim that the SEC is violating the Seventh Amendment right to trial by jury. Similar to SpaceX v. NLRB, Jarkesy asserts that the monetary penalties ordered by the SEC through administrative proceedings deprive defendants of their Seventh Amendment rights.

 

[1]SpaceX, SpaceX, http://www.spacex.com (last visited Apr 7, 2024).

[2]Daniel Wiessner & Daniel Wiessner, SpaceX Illegally Fired Workers Critical of Elon Musk, US Labor Agency Says, Reuters, Jan. 4, 2024, https://www.reuters.com/technology/space/spacex-illegally-fired-workers-critical-elon-musk-us-labor-agency-says-2024-01-03/ (last visited Apr 7, 2024).

[3]Noam Scheiber & Ryan Mac, SpaceX Employees Say They Were Fired for Speaking Up About Elon Musk, The New York Times, Nov. 17, 2022, https://www.nytimes.com/2022/11/17/business/spacex-workers-elon-musk.html (last visited Apr 7, 2024).

[4]Ryan Mac, SpaceX Workers Write Letter to Executives with Concerns about Elon Musk’s Tweets., The New York Times, Jun. 16, 2022, https://www.nytimes.com/2022/06/16/technology/spacex-employees-musk-tweets.html (last visited Apr 7, 2024).

[5]National Labor Relations Act | National Labor Relations Board, https://www.nlrb.gov/guidance/key-reference-materials/national-labor-relations-act (last visited Apr 8, 2024). Note: Trying to cite the NLRA

[6]United States of America Before the National Labor Relations Board Region 31 v.  Space Exploration Technologies Corp. Case 31-CA-307446, 2024 Note:Not sure how to cite NLRB cases

[7]Elon Musk’s SpaceX Illegally Fired Workers Who Criticized Him, NLRB Alleges, https://www.bloomberglaw.com/product/blaw/bloombergterminalnews/bloomberg-terminal-news/S6PA90DWX2PS (last visited Apr 8, 2024).

[8]Case Search | National Labor Relations Board, https://www.nlrb.gov/search/case/space%20exploration?rows=25 (last visited Apr 8, 2024).

[9]Humphrey's Executor v. United States, 295 U.S. 602 (1935)

Seila Law LLC v. Consumer Financial Protection Bureau, 591 U.S. ___ (2020)

[10]OnLabor, Understanding the Latest Constitutional Attacks on the NLRB ✦ OnLabor, (2024), https://onlabor.org/understanding-the-latest-constitutional-attacks-on-the-nlrb (last visited Apr 10, 2024).

[12]Stern v. Marshall, 564 U.S. 462 (2011)

[13]Board Rules Remedies Must Compensate Employees for All Direct or Foreseeable Financial Harms | National Labor Relations Board, https://www.nlrb.gov/news-outreach/news-story/board-rules-remedies-must-compensate-employees-for-all-direct-or (last visited Apr 10, 2024).

[14]SpaceX’s Bid to Upend NLRB Follows Signals From Supreme Court, https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg-law-news/XEFKJE4000000?bc=W1siU2VhcmNoICYgQnJvd3NlIiwiaHR0cHM6Ly93d3cuYmxvb21iZXJnbGF3LmNvbS9wcm9kdWN0L2JsYXcvc2VhcmNoL3Jlc3VsdHMvOTYzNWQ4MjMyNDg1OWYyMWY5NWY1ZjA0ZTUxZjVhZjIiXV0--70f5b6e0e7882532b504046da1098311f8d037d2&criteria_id=9635d82324859f21f95f5f04e51f5af2&search32=BXQK4PCWeGLQA1QAwa6E7Q%3D%3DJ1hiC0gkGkBvqwehVwcwHdDhBTjeauFbcDoJcCc0BU4tR5rT3bXgzSs6HCmhM1fJ8a8PyYQCmiVOvaIT83zpSx4j69Kbd0pAht70aTIMkI8FToGfJKDrOQXF9HeKd7tuUhUsGnAV7D4z4FdRwjSO4T1rSNa2ha01M874DUvwhdA4I11npyAB1fHw5ZsmYeuXsmm3Y1dcQ4NrVMDrXU0Y6SkxsbO88Ovf_M3LNYxzt8RKzTZgyDdNCRsPV5U1y29zSdSb7nM8Z7SWP2yl9wb4P0xLoxiu8oSFpPG9e7gU-DZGzs_A0P6zfB22MWPI0SI9cx9ebwPj85zkewqb-m9oAWfgqNdnftIrPIqoWnBmO5R8wWULErWFxvxURdqaEwVklGESAXOiaVVzfPHYKnctSlsokZU3lPhf-VD9hlxOL1zAiWgg1nCPy2P9MDL4g9uh (last visited Apr 10, 2024)

[15] Space Exploration Technologies Corp. v. National Labor Relations Board et al., Civil Action No. 1:24-cv-00001 (2024).

[16]Space Exploration Technologies Corp., 24-40103, 5th US Circuit Court of Appeals.

[17]Daniel Wiessner & Daniel Wiessner, SpaceX Asks Full 5th Circuit to Review Transfer of Challenge to NLRB’s Structure, Reuters, Mar. 8, 2024, https://www.reuters.com/legal/government/spacex-asks-full-5th-circuit-review-transfer-challenge-nlrbs-structure-2024-03-08/ (last visited Apr 10, 2024).

[18]John Thomas Capital Management Group LLC, d/b/a Patriot 28 LLC; and George R. Jarkesy, Jr.

[19]SEC In-House Judge Case Has Major Implications for Federal Courts, https://www.bloomberglaw.com/bloomberglawnews/us-law-week/X2A0MMR0000000?bna_news_filter=us-law-week#jcite (last visited Apr 10, 2024).

[20]Jarkesy v. SEC, 34 F.4th 446 (5th Cir. 2022), Court Opinion

[21]SEC In-House Judge Case Has Major Implications for Federal Courts, https://www.bloomberglaw.com/bloomberglawnews/us-law-week/X2A0MMR0000000?bna_news_filter=us-law-week#jcite (last visited Apr 10, 2024).


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