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Third Circuit Upholds National Labor Relations Board's Return to Pre-Obama Deferral Standard

July 22, 2021

Third Circuit Upholds National Labor Relations Board's Return to Pre-Obama Deferral Standard

July 22, 2021

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Though a positive outcome for unionized employers, the broad deference that circuit courts apply to Board rules goes both ways.

On July 8, 2021, the United States Court of Appeals for the Third Circuit issued an opinion upholding the National Labor Relations Board’s 2019 decision relating to post-arbitral deferral standards. The Third Circuit found that the Board’s decision to eliminate an Obama-era rule and return to the standard that had been in effect for decades prior was rational and consistent with the National Labor Relations Act (the “Act”).

Though a positive outcome for unionized employers, the broad deference that circuit courts apply to Board rules goes both ways. As we approach a Democrat-majority Board (which could come as soon as August 2021), union and nonunion employers should prepare for the inevitability that many Trump-era rules, such as the post-arbitral deferral standard, could be on the chopping block.

Brief History

The Board has long recognized that the arbitration process is an important aspect of national labor policy, favoring the private resolution of labor disputes. Over the years, the Board has developed various tests for determining under what circumstances deferring to arbitration is appropriate. Prior to 2014, in circumstances where an arbitrator has issued an award and a party files a related unfair labor practice charge, the Board utilized a test from a 1984 decision, Olin Corp., 268 NLRB 573. Under this well-established standard, the Board would defer to an arbitrator’s award where:

  1. The arbitral proceedings appear to have been fair and regular;
  2. All parties have agreed to be bound;
  3. The arbitrator considered the unfair labor practice issue; and
  4. The arbitrator’s decision is not clearly repugnant to the Act. 

That all changed when the Board, under Obama, changed the test. See Babcock & Wilcox Construction Co., Inc., 361 NLRB 1127 (2014). Under the standard in Babcock, the burden was placed on the party urging deferral, which had to show:

  1. The arbitrator was explicitly authorized to decide the statutory 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 permitted the award.

This new test presented a significant shift. It placed the onus on the party seeking deferral (more often the employer) to prove the appropriateness of deferral. It also required explicit authorization to decide the unfair labor practice issue―which meant that if a collective bargaining agreement or other grievance procedure did not already contain such authorization, deferral would be completely out of reach.

In 2019, the Board, with a Republican majority, overturned the Babcock decision. See United Parcel Service, Inc. (UPS), 369 NLRB No. 1 (2019). It explained that there is a strong judicial preference for resolving disputes through collectively bargained grievance arbitration procedures and that, for 30 years, the Olin standard had adequately balanced the rights of involved parties. The Board thus restored the test from the Olin decision and applied it retroactively to all pending cases.

The Third Circuit

Upon appeal, the Third Circuit upheld the Board’s decision in UPS to restore the prior standard. In upholding the restoration of the Olin factors, the Third Circuit explained that the Board is entitled to broad deference so long as the decision is rational and consistent with the Act. It found the Board’s “new” deferral standard appropriate, but remanded the case back to the Board for further proceedings on the issue of whether the initial grievance procedure was fair and regular under Olin.

The Third Circuit’s decision to uphold the Board’s deferral standard aligns with judicial precedent recognizing the Board’s broad authority to interpret the Act. However, with this broad authority (and as recognized by the Third Circuit in this instance) comes the ability for the Board to overturn and/or modify its own interpretations. As the Supreme Court of the United States has stated, “a Board rule is entitled to deference even if it represents a departure from the Board’s prior policy.” NLRB v. Curtin Matheson Sci., Inc., 494 U.S. 775, 787 (1990). So even though the Board’s reversal of Babcock is a positive outcome for companies that have collective bargaining agreements, by August we could again have a Democrat-majority Board, which will look to shape the law in support of its own agenda.

What This Means for Employers

Although the Third Circuit upheld the Board’s decision in UPS, and the Olin standard again applies, employers with collective bargaining agreements may still want to revisit their current grievance procedures in anticipation of a Democrat-majority Board. Though it would take time for a deferral case to percolate up to a newly configured Board, bolstering contract terms now would help preempt a return back to the Babcock standard (should this become a Board priority).

Employers should also be aware of the Board’s broad authority to interpret the Act, and prepare for the likely onslaught of reversals of decisions from the Trump-era Board. A Democrat majority on the Board, combined with a Democrat-appointed general counsel, will quicken the pace at which the Biden administration can modify Board decisions to support its own agenda. All employers, regardless of whether they have a unionized workforce, need to be alert to the labor policy changes that are sure to come over at least the next four years.

For More Information

If you have any questions about this Alert, please contact Eve I. Klein, James R. Redeker, Elizabeth Mincer, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.