In the first judicial challenge to the NLRB’s Specialty Healthcare decision, the U.S. Court of Appeals for the Sixth Circuit has upheld the Board.

In Specialty Healthcare the Board held that it will find a petitioned for unit appropriate where the unit is made up of (i) an identifiable group of employees (ii) who share a community of interest with one another. No othere employees could be added to the petitioned-for unit unless they shared an overwhelming community of interest with employees already included by the union.  This opens the door for a multiplicity of bargaining units in a single place of employment where, previously, all employees sharing a community of interest would likely have been included in a single unit. We have previously blogged about the Specialty Healthcare case and its impact here, here, here, here, and here.

In Kindred Nursing Centers East (f/k/a Specialty Healthcare) v. NLRB, __ F.3d __ (Nos. 12-1027/1174, August 15, 2013), the Sixth Circuit held that the Board has broad discretion when it comes to finding the appropriate bargaining unit, and that it must uphold a Board decision

‘[U]nless the employer establishes that it is arbitrary, unreasonable, or an abuse of discretion.’. . . We review deferentially the Board’s determination of appropriate bargaining units because ‘[t]he Board has wide discretion in determining the limit of an appropriate bargaining unit.’ . . . We have even gone so far to say that ‘[n]ormally the Board exercises a discretion bordering on finality in determining the union appropriate for bargaining . . . .’

Slip op. at 9 (citations omitted).

The court addressed four principal arguments asserted by Kindred in support of its position that the new test for bargaining units articulated in Specialty Healthcare was an abuse of the Board’s discretion.

First, Kindred argued that it was an abuse of discretion for the Board to depart from the existing and well-established community of interest standards of its prior precedent.  However, the court stated that an agency may depart from its prior precedents, and provided that “’the departure . . . is explained, our review is limited to whether the rationale is so unreasonable as to be arbitrary and capricious.’”  Slip op. at 10-11 (citations omitted).  Here, the court ruled, because the Board “adopted a community-of-interest test based on some of the Board’s prior precedents and . . . did explain its reasons for doing so, the Board did not abuse its discretion in applying a version of its traditional communityof-interest test to find a CNA-only bargaining unit to be appropriate.”  Slip op. at 13.

The court next turned to Kindred’s argument that the Board abused its discretion by adopting an overwhelming community of interest test to any attempt by an employer to add other employees to the unit.  But the court again held that

the Board did cogently explain its reasons for adopting the overwhelming-community-of-interest standard. The Board explained the need to clarify its law, acknowledging that it had used some variation of a heightened standard when a party (usually an employer) argues that the bargaining unit should include more employees. The Board explained that it “has sometimes used different words to describe this standard and has sometimes decided cases such as this without articulating any clear standard.”

Slip op. at 15 (citation omitted).

The court concluded that “[b]ecause the overwhelming-community-of-interest standard is based on some of the Board’s prior precedents, has been approved by the District of Columbia Circuit [in Blue Man Vegas, LLC v. N.L.R.B., 529 F.3d 417 (D.C. Cir. 2008)], and because the Board did cogently explain its reasons for adopting the standard, the Board did not abuse its discretion in applying this standard in Specialty Healthcare II.”  Slip op. at 16.

Kindred’s third argument for abuse of discretion was that the Specialty Healthcare test is contrary to section 9(c)(5) of the National Labor Relation Act, 29 U.S.C. Sec. 159(c).  Section 9(c)(5) forbids the Board from making the extent of union organizing the controlling factor in determining an appropriate unit.  The company maintained that by requiring an employer to establish an “overwhelming community of interest” between the proposed unit and others who should also be in the unit, the proposed unit would be virtually immune from attack.  Thus, the unit proposed by the union – undoubtedly based on the extent of its organizing – would be the controlling factor in all but the rarest of cases.

The court disagreed, stating its analysis by stating that “Section 9(c)(5) appears to have been added to prevent the Board from . . . [determining] a bargaining unit without applying any kind of community-of-interest analysis, but solely on the basis that the workers wanted to organize a union.”  Slip op. at 17. This had happened in a number of NLRB cases before the 1947 Taft-Hartley amendments to the National Labor Relations Act, which added section 9(c)(5).  Ignoring the irony, the court stated that “[t]he Board at that time acted as a union partisan, encouraging organizing.”  Id.  The court continued:

But Kindred’s argument misses the mark, because here . . . the Board did not assume that the CNA-only unit was appropriate. Instead, it applied the community-of-interest test . . . to find that there were substantial factors establishing that the CNAs shared a community of interest and therefore constituted an appropriate unit—aside from the fact that the union had organized it. Indeed, nowhere in its briefs, nor before the Board, did Kindred dispute that the CNAs shared a community of interest. Therefore, the Board’s approach . . . did not violate section 9(c)(5).

Nor does the overwhelming-community-of-interest test violate section 9(c)(5). In this regard, we find persuasive the District of Columbia Circuit’s analysis in Blue Man, which [the Board] relied upon and quoted as holding that “‘[a]s long as the Board applies the overwhelming community of interest standard only after the proposed unit has been shown to be prima facie appropriate, the Board does not run afoul of the statutory injunction that the extent of the union’s organization not be given controlling weight.’”

Here . . . the Board followed the Blue Man approach, conducting its community-of-interest inquiry before requiring Kindred to show that the other employees shared an overwhelming community of interest with the CNAs. It would appear, then, that [the Specialty Healthcare standard] does not violate section 9(c)(5) of the Act.

Slip op. at 18-19 (citations omitted).

Finally, the court held that the Board did not abuse its discretion in adopting a generally applicable rule through adjudication instead of rulemaking.  The court quoted NLRB v. Bell Aerospace Co. Div. of Textron, Inc., 416 U.S. 267, 294 (1974), which held that “the Board is not precluded from announcing new principles in an adjudicative proceeding and that the choice between rulemaking and adjudication lies in the first instance within the Board’s discretion.”

The court acknowledged that the Supreme Court had added:  “[T]here may be situations where the Board’s reliance on adjudication would amount to an abuse of discretion or a violation of the Act.” However, the Board said, Kindred had not explained why the Board’s election of adjudication in this case amounted to an abuse of discretion or a violation of the Act.  Further, the court noted, the Board had solicited briefs from the parties and the general public, “thereby providing for the opportunity for the public’s input, which is one of the hallmarks of notice-and-comment rulemaking under the Administrative Procedure Act.”  Slip op. at 19.

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The Sixth Circuit’s decision in this case has been long awaited.  While the result may be disappointing to employers, it is virtually certain not to be the last word.  Similar cases pending in the Fourth Circuit have been derailed by the recess appointment dispute, but other cases are pending before the Board, and NLRB regions continue to apply the Specialty Healthcare test in representation cases.  Over time some of these cases are sure to work their way through the somewhat ungainly system for obtaining review of Board decisions in representation cases.  The issues may then be put to other circuits, with the distinct possibility of obtaining a different result than that reached by the Sixth Circuit here.