Jordan McGillis is joined by Ilya Shapiro to discuss the recent National Labor Relations Board ruling against the coffee giant.
Audio Transcript
Jordan McGillis: Hello and welcome to 10 Blocks. I'm Jordan McGillis, Economics Editor of City Journal. Our topic today is a recent ruling by the National Labor Relations Board, the NLRB, against Starbucks. On September 13th, the NLRB ruled that Starbucks violated the National Labor Relations Act by, “Permanently closing its two remaining stores in Ithaca, New York, for anti-union reasons.” And that ruling was delivered by Judge Jeffrey Carter. To discuss this matter, I've invited onto the show the Manhattan Institute's Director of Constitutional Studies, Ilya Shapiro. Ilya, thanks for hopping on.
Ilya Shapiro: Great to be with you.
Jordan McGillis: Okay, before we get into the weeds of administrative law, I got to ask, What's your go-to Starbucks drink? You a pumpkin spice latte guy?
Ilya Shapiro: I make my own coffee at home. I'm rarely going to Starbucks, and I take my coffee black. So if I happen to be at a Starbucks or other cafe, I'll just take the Pike Place or whatever the darkest roast is black.
Jordan McGillis: Okay. So it sounds like you're predisposed against Starbucks, perhaps here, which could present a more balanced discussion. All right. Can you explain how we got here? How can an obscure agency order a business to reopen stores?
Ilya Shapiro: Well, it's not obscure. The National Labor Relations Board is one of the most powerful agencies in Washington. Certainly, it's the Labor Department's attack dog, although it's technically independent from the Labor Department per se. There have been fights over Starbucks’ unionization, and the allegation was that Starbucks closed these two, and I think some other stores as retaliation or as hardball tactics to prevent the workers or to intimidate them from unionization.
And this NLRB, not the whole board, it now gets appealed to the whole board, but it's an administrative law judge. So an internal judge, not an article III, not a federal judge confirmed by the Senate, but a bureaucrat within the NLRB who's designated as a judge, an administrative judge, has sustained the challenge, meaning saying that Starbucks is in the wrong and issued the remedy that they have to reopen the stores. Now, I'm not a labor lawyer, so when I first learned of this ruling, I thought, “That's weird. Can they really order a store to open?” I mean, I understand wages or hours or saying you can't do this or that or interfere with unionization. I get that. But can they order a store to open? And it seems like that is something within their... They can do almost anything. That is how broad the National Labor Relations Act is.
Jordan McGillis: Can you give us a little bit more context on this particular judge and his position? And is that an appointment he gets from the president? Is that something that he's working at the NLRB and then gets slotted there? How does this person come to have the authority to make this ruling, which may, as you describe, go before the whole board?
Ilya Shapiro: So it's an internal adjudicator not confirmed by the Senate or nominated by the president. It's like you're working at an agency, and lots of federal and state agencies have administrative law judges to adjudicate disputes that arise involving the agency's regulation within its purview. And so he might've been a lawyer at the agency or he might've been an outside lawyer, and they decided to hire him to be this internal adjudicator. Now interestingly, this past term at the Supreme Court, there's a case called Jarkesy versus SEC, Securities and Exchange Commission, where the court ruled that the SEC's ALJs, administrative law judges, can be unconstitutional in the sense of violating someone's right to a jury trial because they, the SEC, like the NLRB here, investigates, prosecutes, adjudicates, punishes all by itself. And it could be hundreds of thousands of dollars of fines, as in the SEC case, or here ordering a store to reopen.
So I think the NLRB may be subject to future challenge, although the key thing with that Jarkesy case was that the Constitution, the Seventh Amendment, requires a jury trial when there's a dispute under common law. And there it was: securities fraud. Fraud is a common law thing. Here, it could be, since labor law is a product of government and statutory law, that doesn't apply, but it raises similar concerns even if you can't challenge it constitutionally. You have an agency that writes the rules, investigates, enforces, adjudicates, and punishes, and eventually can be appealed to the relevant Federal Circuit Court of Appeals. But that takes a long time and obviously a lot of money.
Jordan McGillis: Will this particular ruling by the administrative law judge necessarily go before the wider NLRB, or is that contingent upon Starbucks choosing to appeal?
Ilya Shapiro: Well, yeah, Starbucks does have to appeal.
Jordan McGillis: Okay.
Ilya Shapiro: And they have a right to appeal to the full NLRB, and from there they have a right to appeal to the Federal Circuit. Presumably, that would be the Second Circuit, which has jurisdiction over New York State. The NLRB could just rubber stamp the judge's decision; they don't have to take a lot of time; they don't even have to take a lot of briefing or have oral argument. They have a lot of flexibility in their procedures, but they probably would go through the motions of, “Oh, all this.” They could change the judge's order; they could reverse it. And what Starbucks will be saying, assuming it appeals, and I imagine it will. I mean, why wouldn't it? Unless it really thinks that it's in the wrong, based on the law, they have to show that this would be a... First of all, they can appeal obviously on the merits that they're not engaged in anti-union behavior.
And two, that the remedy is too strong; it's too much of a burden. Which it's not simply, “Well, you're a big multinational corporation, you can afford to run two more stores, even if it means losing money on those two stores.” That's not the standard, but if the remedy to whatever violation is found is disproportionate, then it could be cut back. Maybe they'll only have to pay a fine; maybe they'll have to increase wages for workers in their New York or Ithaca area, Starbucks, who knows? The NLRB can craft a remedy in different ways, and then again, it can go up to appeal after that to the federal appellate court.
Jordan McGillis: Can you give us an idea of what the law has to say about supposed anti-union action such as Starbucks is alleged to have taken?
Ilya Shapiro: Well, again, I'm not a labor employment lawyer, so it's not like I've litigated these cases, but there are very broad rights to get together if there's a signaling and intent to have a unionization campaign, then the employer can't interfere in various ways. And the allegation here, and what the administrative law judge found, was that there was interference in the sense that they saw that the stores might unionize, and so they just shut them down to prevent the unionization. That's what this boils down to.
Jordan McGillis: Can we go way back in the vault now and get an overview of the National Labor Relations Act and how that came into fruition?
Ilya Shapiro: Not on the spot, man. It was in the early part of this century, there were a lot of disputes, so labor versus management, and in the interest of what's called labor peace, Congress passed this law and gave, this was during the New Deal, gave a presumptive thumb on the scale to workers in the attempt to unionize. It's a very union-friendly law and its wide-ranging, but the NLRB shifts in composition, and so its enforcement can be a little zigzaggy depending on whether Republicans or Democrats are in control.
Jordan McGillis: The composition of the NLRB is that a panel of three, five, seven? What does it look like exactly?
Ilya Shapiro: Again, you're quizzing me on this stuff. I was not told there would be math on this podcast. I think it's five. Typically, it's evenly balanced, so a majority by four, who is in control of the executive branch at any given time. Yeah, it's a five-person board, five-year terms; there's a general counsel who tends to be pretty powerful and can and be, and can take certain actions by himself. There are 36 administrative law judges that are just below that board. And the total number of employees, obviously I'm Googling this as I'm talking to you here, is 1200. So I don't know whether that counts as a large agency or a small one these days, but it's a pretty powerful organization.
Jordan McGillis: Okay. Now this current case, is this happening alongside, or is this related to the Supreme Court case that involved Starbucks in the last year?
Ilya Shapiro: It's separate. It's separate. I mean, there's a long string of unionization efforts at Starbucks; this is localized to what Starbucks is doing to prevent unionization in and around upstate New York.
Jordan McGillis: Okay. The whole phenomenon of Starbucks and potentially unionizing employees being in conflict is kind of odd to me because Starbucks has long prided itself on having this worker-centric view of business. And you'll hear Howard Schultz, the guy who started it, talk about the honor of wearing the green apron and things like that. And he famously gave early workers stock in the company when they were not public. They're also paying for college tuition for full-time workers, I believe, through Arizona State University. So it seems like, in many ways, the perfect place to work as you're getting your foot into the door of the economy getting onto the employment ladder, and it's turned out to be a pretty good place to work for people long term as well.
Ilya Shapiro: Apparently so. I mean, Starbucks and McDonald's are mentioned as the first step in the door on the way to the American Dream, and what have you. Probably not quite as many teenagers work at Starbucks as they do at McDonald's. But yeah, Howard Schultz is, he briefly ran for president, I think, in 2020, and a very progressive-minded company. But it just shows that sometimes, even if you're broadly aligned politically, unions want to exploit what leverage they have that the law gives them. And it's not quite Ben & Jerry's, but once it's a big enough company, they're going to try to take advantage.
Jordan McGillis: And in terms of the merits of this particular ruling against Starbucks, do you have any thoughts on that? Does it seem like the judge's interpretation aligns with what you think is valid, or is he overstepping here, and Starbucks probably didn't deserve to get ruled against it in this way?
Ilya Shapiro: I mean, the Wagner Act, the National Labor Relations Act, is very broad and gives a lot of discretion to the enforcing agency. I think it could very well be plausible that Starbucks violated the unionization effort here. Whether that merits such a strong remedy of forcing it to reopen the store, there is where I question the thing. I can see this being resolved with a monetary settlement. And Starbucks would rather pay out money than have to run stores that aren't going to be profitable.
Jordan McGillis: As someone who's inclined toward capitalism and a dynamic economy in which businesses are making decisions that may involve closing, opening, any number of things, how can we revise the legal standards? How can we change the status quo, overturn precedent perhaps, and get some rulings in place here, get administrative law into a place that's going to facilitate a more balanced adjudication in favor of property rights and business freedom?
Ilya Shapiro: Well, states can pass right-to-work laws. That is that you're free to work outside of a union. They tend to lessen the power or the incentives to join or form unions. In terms of legal challenges, there were legal challenges to the NLRA back in the New Deal, and I think it's not the lowest hanging fruit in terms of challenging the administrative state, but interpretations of various rules, as I said, ebb and flow depending on who's in control of the NLRB and who's the general counsel. It's not the case that management is always in the right either.
I'm for markets; I'm not for business per se, because, of course, big business likes regulation that they can use. They have the advantage over smaller entrepreneurial upstarts that they can pay lots of lawyers and compliance officers, and what have you, to deal with stronger regulations. So it's not even necessarily the case that all Fortune 500 companies want the same kind of reforms to the NLRA. Some of them are in an advantaged position and can deal with the status quo. But I think most of the action, or most of the problems that we're seeing, have to do with public sector unions, not private, and the control of... Its kind of, you know, FDR was against public sector unions because it's kind of like the two wolves negotiating with the sheep over what's for dinner because the taxpayers are left in the lurch, in that bargain. And then there's further constitutional issues with union government agreements, bargaining agreements that bind the next administration and can affect policy choices thereby; that would seem to be a separation of powers problem.
Jordan McGillis: Last question for you: if we're looking at the administrative state more broadly, what is the low-hanging fruit?
Ilya Shapiro: Well, we just had Chevron overturned; that's the doctrine that judges are to defer to administrative agencies interpreting their own statutes. I think that'll have a bigger effect in how agencies behave, that they'll probably not take such bold risks in their regulations, rather than seeing an immediate impact in the courts. Although the Biden Title IX regulations, which are currently being, they've been enjoined, and they're currently being appealed, that could be one where the lack of Chevron definitely changes the course of that litigation.
What's known as non-delegation is a growing area that is challenging the idea that Congress can delegate the authority to make laws in certain areas to administrative agencies delegating the legislative authority. Now, no federal law has been set aside on non-delegation grounds since the 30s. So it's a tough row to hoe. But the court has been using other tools to check two expansive grants of power. For example, the major questions doctrine, saying that if an agency purports to have authority over something that is of significant social or economic consequence, then courts are not to presume that the agency simply has that authority. We need an explicit directive from Congress, and Congress doesn't always provide that. So that's where the battleground is in the next five to 10 years.
Jordan McGillis: All right, our guest today has been Ilya Shapiro. Ilya, you'll find a Starbucks gift card in your email address. Thank you for your participation, sir.
Ilya Shapiro: Thanks, Jordan.
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