United States: Micro-Units Under The Microscope: The Second And Fifth Circuit Courts Consider Specialty Healthcare And Its Misapplication

Last week, the U.S. Court of Appeals for the Second Circuit joined the Third, Fourth, Fifth, Sixth, Seventh, and Eighth Circuits in upholding the Board's Specialty Healthcare standard for determining appropriate bargaining units under the National Labor Relations Act, although with a very skeptical eye on how it applied. Constellation Brands, U.S. Operations, Inc. v. NLRB, No. 15-2442, 2016 U.S. App. LEXIS 20768 (2d Cir. Nov. 21, 2016). Though the court found that Specialty Healthcare was consistent with the Act, the court further held that the Board misapplied the test because the Regional Director failed to analyze why the excluded employees had "meaningfully distinct interests" from members of the petitioned‐for unit to warrant the establishment of a separate unit. This comes merely three days after the Fifth Circuit denied a petition for rehearing en banc in Macy's, Inc. v. NLRB, No. 15-60022, 2016 U.S. App. LEXIS 20682 (5th Cir. Nov. 18, 2016), where six dissenting judges sharply criticized a "micro" unit's certification, similarly questioning the "meaningfully distinct interests" analysis under the Specialty Healthcare framework.

In Specialty Healthcare, 357 NLRB No. 83 (August 26, 2011), a divided National Labor Relations Board held that it will find a petitioned-for unit appropriate where the unit is made up of an identifiable group of employees who share a community of interest with one another. No other employees could be added to the petitioned-for unit unless they shared an overwhelming community of interest with employees already included by the union. We've previously discussed this topic here, here, and here.

In Constellation Brands, the Board's Regional Director determined that a subset of a cellar operations department within a completely integrated production facility constituted an appropriate bargaining unit. The Regional Director rejected the employer-winery's argument that the remaining employees within cellar operations should also be included in the unit. He found "that the employees in that unit are a readily identifiable group, such that there is a rational basis for grouping them together in a bargaining unit." In a footnote order, the Board declined to review the Regional Director's decision.

On appeal, the Second Circuit upheld the Specialty Healthcare standard, but remanded the case to the Board. The court held that Specialty Healthcare demands more than a mere recitation and repetition of the standard. Rather, "the Board must analyze . . . the facts presented to: (a) identify shared interests among members of the petitioned‐for unit, and (b) explain why excluded employees have 'meaningfully distinct interests' in the context of collective bargaining that outweigh similarities with unit members." The court further clarified that this showing must be made by the union, and not the employer.

The Second Circuit is the latest circuit court to uphold Specialty Healthcare. Back on June 2nd, 2016, the Fifth Circuit upheld Specialty Healthcare and found that Macy's failed to establish that a bargaining unit, consisting solely of cosmetics and fragrances employees at one of its stores, was clearly not appropriate. Macy's petitioned for a rehearing en banc, arguing that it could be compelled to bargain with thousands of "micro" units – comprised of employees working in a specific sales department in a single store. On November 18th, 2016, the Fifth Circuit, in a split vote, denied further review. In the process, six judges dissented in a sharply-worded opinion penned by Judge E. Grady Jolly.

The dissenting judges noted that the Board's community-of-interests analysis focused solely on the similarities of the employees in the petitioned-for unit, while failing to consider the similarities and differences of excluded employees. By the same logic, "[t]hree bowtie salesmen would be an appropriate bargaining unit if they sold bowties at a separate counter from other merchandise." This approach hardly promotes labor peace and stability, the dissent observed. In analyzing the community of interest factors, "the NLRB must compare and contrast the employees in the group with each other and with employees outside of the group." Because the Board failed to consider any of the similarities between included and excluded employees, only identified one distinction between them, and did not explain how that distinction was meaningful, its decision was an abuse of discretion.

Significantly, both the Second Circuit and the dissenting judges of the Fifth Circuit noted the drawbacks that can result from the incorrect application of the Specialty Healthcare framework. The Second Circuit noted amici's concerns of the proliferation of "micro" units and their impact on employer's operations. The Fifth Circuit dissenters explained that as "micro" units flourish, there could be a dozen micro-units within an employer's workforce, with disputes and "mini-strikes occurring continually over the working year." While Specialty Healthcare has been upheld by every circuit court to consider it, various bills have been introduced in Congress to repeal the decision and eliminate "micro" units. We will continue to monitor the developments given the recent changes in political administration.

Micro-Units under the Microscope: The Second and Fifth Circuit Courts Consider Specialty Healthcare and Its Misapplication

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