The US Court of Appeals for the Fifth Circuit has questioned the constitutionality of the National Labor Relations Board (NLRB) while granting relief to Elon Musk’s SpaceX, Energy Transfer, and Findhelp. While courts have struck down the NLRB’s decisions in the past as well, the current ruling is crucial, finding that the NLRB’s structure is somehow unconstitutional, despite its grounding in laws passed by Congress.

For context, all three companies were facing different complaints of unfair labor practices. For instance, the NLRB put forward its unfair labor practices case against SpaceX after the company fired employees who had signed an open letter criticizing its billionaire Elon Musk and the sexist culture at the company.

SpaceX Challenged NLRB’s Constitutionality

SpaceX, Energy Transfer, and Findhelp filed suits in different federal courts challenging the constitutionality of the NLRB’s structure. Particularly, they challenged the dual for-cause removal protections wherein the President can remove the board members “for neglect of duty or malfeasance in office” while the administrative law judges (ALJs) can only be removed “for good cause,” as determined by the Merit Systems Protection Board (MSPB)” that too are protected by “for cause removal.”

Notably, NLRB judges cannot be removed by either the agency or the president at their will, and there has to be a proper reason behind their removal. The rule many believe runs contrary to the President’s executive powers.

Meanwhile, in all these cases, the court granted a preliminary injunction, which the NLRB appealed on two counts. First, it said that the district courts lacked jurisdiction to enjoin ongoing board proceedings. Second, it said that they abused their discretion in doing so.

Fifth Circuit Court Says Process of Removing NLRB’s ALJs Is Unconstitutional

The Fifth Circuit disagreed with both of these assertions and said that there is nothing in federal law that strips federal courts of jurisdiction to hear these claims. It also ruled that the district courts were within their discretion to grant preliminary relief.

It pointed to its previous order regarding Securities and Exchange Commission (SEC) ALJs and said, the “same analysis applies here. NLRB ALJs, too, are protected by “at least two layers of for-cause protection.” It termed the removal restrictions for NLRB ALJs “unconstitutional” even as it did not specifically say that the agency itself if unconstitutional.

One Judge Partially Dissented with the Fifth Circuit Order

Notably, the Fifth Circuit panel has two judges appointed by President Trump, while the third, Jacques Wiener, is a George H.W. Bush appointee, who partially dissented with the order. Wiener wrote that he dissents with the order that “employers are entitled to a preliminary injunction regarding the removability of NLRB board members.”

He added, “Because the Employers have failed to prove that they would suffer irreparable harm in the absence of a preliminary injunction for that specific issue, I would instead reverse the district court’s decision granting injunctive relief.”

Critics Slam Fifth Circuit Ruling

The NLRB is an independent agency created in 1935 to enforce the National Labor Relations Act (NLRA). The NLRB manages nearly all union elections in private companies and can create regulations and handle cases related to labor law violations. It has both prosecution and ALJ divisions. It is, therefore, unsurprising that the NLRB has been in the crosshairs of corporations, big and small.

Labor activists have expectedly slammed the Fifth Circuit Ruling as the NLRB took up several cases of unfair labor practices involving big corporate houses. In his tweet, Senator Bernie Sanders said that the Fifth Circuit ruling gives Musk and “other union busters the absolute power to exploit workers & violate labor law with impunity.”

Musk’s Companies Don’t Have a Boast-Worthy Record on Labor Relations

To be sure, Musk and, by extension, the companies that he leads, have never been shining examples of labor relations and have been in the NLRB’s crosshairs on more than one occasion.

The NLRB ruled that a tweet from CEO Elon Musk, which threatened employees with the loss of stock options if they voted for a union, was an unlawful threat. However, in a 9-8 vote, the Fifth Circuit Court of Appeals vacated the NLRB’s order last year as it found the tweet amounted to free speech as enshrined in the First Amendment.

In another case, the NLRB ruled that Tesla violated the National Labor Relations Act (NLRA) by barring employees from wearing pro-union t-shirts instead of their company-issued uniform shirts. The order was also unanimously vacated by the Fifth Circuit Court of Appeals in 2023.

Tesla has also faced lawsuits over a toxic work environment and racial and sexual discrimination.

Some Shareholder Groups Have Spoken Against Tesla’s Labor Policies

Tesla’s labor policies have been concerning for some shareholder groups, and in June, Swedish pension fund AP7, which held around $1.36 billion stake in Tesla at the end of May, blacklisted the company and sold all its shares in citing labor rights violations by the company.

In its release, the fund said, “AP7 has decided to blacklist Tesla due to verified violations of labor rights in the United States. Despite several years of dialogue with Tesla, including shareholder proposals in collaboration with other investors, the company has not taken sufficient measures to address the issues.”

What Happens to the NLRB’s Future?

The Fifth Circuit Ruling has put a question mark on the NLRB’s future, and it is expected to appeal the decision. Legal experts believe that the case could be headed to the US Supreme Court, considering the dissenting Fifth Circuit order and the far-reaching implications of the judgment.