A decision recently issued by the National Labor Relations Board (NLRB, or Board) highlights the severity of sanctions the NLRB may award against employers — namely litigation expenses, including attorneys’ fees — for what it deems bad faith conduct in matters contested before that agency. In this case, however, there was a strong dissent as to whether the NLRB possesses the power to award such a sanction, so this issue bears watching in the future.

In Camelot Terrace, 357 NLRB No. 161, issued December 30, 2011, the employer was charged with bad faith bargaining in violation of the National Labor Relations Act (NLRA) for, among other things, allegedly restricting the dates and lengths of bargaining sessions with the union, cancelling and shortening scheduled sessions, refusing to bargain over mandatory subjects, and reneging without good cause on tentative agreements it had reached with the union. To make matters worse, after being accused of these alleged violations of the act, the employer reached settlement agreements with the union, supervised by an NLRB administrative law judge (ALJ), and then allegedly proceeded not only to violate those settlement agreements, but also to continue violating the act by restricting the length of bargaining sessions, failing and refusing to provide requested information to the union, dealing directly with union members during bargaining, making unilateral changes to union members’ terms and conditions of employment, and discharging a union member based on a unilaterally implemented attendance policy. The NLRB reopened the record, set the settlement agreements aside, and ultimately found the employer liable for numerous fundamental and bad faith violations of both the NLRA and the NLRB’s administrative  process.

The Board ordered the employer to (a) reimburse the union for all costs and expenses it had incurred in collective bargaining negotiations over a stated period of time, and (b) reimburse both the union and the NLRB for all costs and expenses they incurred in the investigation, preparation, and conduct of the post-settlement agreement phase of the case.

Negotiation Expenses

The Board has previously awarded negotiation expenses as a remedy, against both employers and unions, in cases when it has found the respondent engaged in:

unusually aggravated misconduct … where it may fairly be said that a respondent’s substantial unfair labor practices have infected the core of a bargaining process to such an extent that their “effects cannot be eliminated by the application of traditional remedies,” … [such that] an order requiring the respondent to reimburse the charging party for negotiation expenses is warranted both to make the charging party whole for the resources that were wasted because of the unlawful conduct, and to restore the economic strength that is necessary to ensure a return to the status quo ante at the bargaining table. …

Frontier Hotel and Casino, 318 NLRB 857, 859 (1995), enfd. in part sub nom. Unbelievable, Inc. v. NLRB, 118 F.3d 795 (D.C. Cir. 1997).

In Camelot Terrace, the Board found this remedy to be warranted due to “numerous instances of overt and deliberate bad-faith conduct” by the employer that were designed to obstruct and prolong the union’s attempts to engage in bargaining. No serious question was raised as to whether the Board has the power to award negotiation expenses as a remedy under Section 10(c) of the NLRA, and this portion of the Board’s decision was unanimous. Section 10(c) of the act allows the Board, upon finding a respondent guilty of an unfair labor practice, “to take such affirmative action … as will effectuate the policies of this Act.”

Litigation Expenses

The second portion of the Board’s decision, however, triggered a strong dissent by Member Hayes. The Board awarded litigation expenses including attorneys’ fees to both the union and the NLRB, citing as the basis for this award its “inherent authority to control its own proceedings.”  It cited prior NLRB decisions as recognizing its inherent authority to award such a sanction against both employers and unions, and stated that “[i]n view of this holding, we find it unnecessary to pass on the Respondent’s argument that the Board’s remedial authority under Section 10(c) of the Act does not encompass the award of litigation expenses.”  It is perhaps not surprising that the Board did not rest its attorneys’ fees award on Section 10(c), since prior court decisions had indicated that Section 10(c) does not authorize such a remedy.

By treating the litigation expenses award as a sanction, the Board acknowledged that it was assuming an inherent power similar to that of a federal court. It stated that it has the power to award litigation expenses through application of the “bad-faith” exception to the American Rule. Under the American Rule, parties are ordinarily responsible for their own litigation expenses.

The dissent did not disagree that the employer had committed numerous egregious acts of bad faith, which included, according to findings made by the ALJ, “contradictions, inconsistencies, and outright lies under oath.”  Rather, the reason for Member Hayes’ dissent was his belief that the Board simply does not have the authority to award attorneys’ fees as a sanction. He stated that the Supreme Court’s decision regarding the American Rule in Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240 (1975) makes it clear that an administrative agency needs clear statutory support for any claimed authority to make an award in deviation from that rule. He criticized the majority for claiming such authority without pointing to any statutory support and without citing even “a single court decision, post Alyeska, in which any agency order shifting responsibility for attorney fees based on a theory of ‘inherent authority’ has been upheld.”

Camelot Terrace was decided by a three-member Board. Chairman Mark Gaston Pierce and Member Becker were in the majority; the decision was issued just before Member Becker’s term expired. Member Hayes, the dissenter, remains on the Board. Three additional members have since been added to the Board through purported “interim appointments” by President Obama.

Assuming that the currently constituted Board continues to follow the ruling laid down in Camelot Terrace, employers (and unions) must be aware that they can face attorneys’ fees awards as a sanction for aggravated bad faith conduct in NLRB proceedings. We will continue to monitor this issue along with whether the dissent regarding the Board’s power to award such sanctions impacts future proceedings.

If you have questions about this NLRB decision or about implementing preventative measures in your business to avoid violations of the National Labor Relations Act, please contact:

Sean P. Beiter (716.566.5409; sbeiter@goldbergsegalla.com)
Julie P. Apter (716.566.5458; japter@goldbergsegalla.com)
Richard A. Braden (716.566.5436; rbraden@goldbergsegalla.com)
Seth L. Laver (267.519.6877; slaver@goldbergsegalla.com)
Philip H. McIntyre (716.844.3422; pmcintyre@goldbergsegalla.com)
Matthew C. Van Vessem (716.566.5476; mvanvessem@goldbergsegalla.com)
Or another member of the Goldberg Segalla Labor and Employment Practice Group