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November 1, 2011

National Labor Relations Bungle

The agency's clash with Boeing Co. is a stark example of regulatory dysfunction, political gridlock and a corporate communications blunder.

For a small federal agency with a narrow jurisdiction, the National Labor Relations Board (NLRB) has triggered a mammoth legal and political controversy that could substantially affect the national economy.

By lodging a dramatic legal complaint on April 20, alleging that Boeing Co. has deliberately engaged in unfair labor practices at a unionized factory, the NLRB—an independent federal agency that oversees the nation's labor laws and adjudicates workplace disputes—set off a controversy with repercussions that go far beyond the factories at issue in the case, a unionized aircraft assembly plant in Everett, Washington, and a similar but non-unionized plant in North Charleston, South Carolina.

The legal dispute over Boeing's next-generation aircraft, the 787—dubbed the “Dreamliner”—has led to a political uproar, inflaming the long-simmering hostility between two of the nation's best-funded interest groups: the pro-business lobby and the organized labor movement. The drama has also mobilized the most vocal elements of polarized American politics: Republicans versus Democrats, Southerners versus Northerners, right-to-work states versus union-friendly states, Tea Party insurgents versus liberal activists.

All of this was in a sharp spotlight in mid-September when the U.S. House of Representatives approved a bill to prevent the NLRB from pursuing its legal complaint against Boeing. Although the legislation was dead on arrival—even if the Senate were inclined to approve it, President Obama would surely veto it—the debate ignored any substantive issues and instead put a harsh light on the angry and futile partisan posturing that passes for political discourse these days.

The NLRB was characterized as a bunch of labor “attack dogs” crippling Boeing, as U.S. Rep. Lynn A. Westmoreland (R-Georgia) put it. Boeing was portrayed as a union-busting company promoting “an Outsourcers' Bill of Rights,” in the words of U.S. Rep. Robert E. Andrews (D-New Jersey). Anyone looking for a reasoned discussion of the serious legal issue at hand would not find it in the House of Representatives that day.

Moreover, the political brawl seems certain to continue, even if Boeing and the International Association of Machinists and Aerospace Workers somehow reach a settlement in the legal case itself. The dispute has become an incendiary issue in the early stages of the 2012 presidential campaign, because the epicenter of the legal dispute is South Carolina—a “right-to -work” state where voters and lawmakers have traditionally been deeply skeptical of organized labor, and where a Tea Party-backed governor is eager to make the NLRB's conduct an issue in the mid-winter Republican presidential primary.

Beyond the political drama, another factor may be affected by the case's outcome: the strength of the U.S. recovery from recession.

Enormous implications for the still-fragile U.S. economy hinge on the outcome of the NLRB complaint against Boeing. The case threatens to send a chill through the manufacturing industry's investment decisions, according to the National Association of Manufacturers (NAM) and the U.S. Chamber of Commerce. It has also raised concerns about a major U.S. exporter's ability to fulfill its worldwide clients' backed-up orders for more than 800 aircraft—with a price tag of as much as $200 million per plane.

To be sure, even if the NLRB complaint against Boeing were affirmed, that would not prevent Boeing from manufacturing the 787. The Everett assembly line has the capacity to produce seven aircraft per month, while the North Charleston plant can produce three per month. But if the NLRB complaint forced Boeing to change its manufacturing plans—perhaps reallocating the volume of work between Everett and North Charleston—the shift could complicate more than $160 billion in potential U.S. sales.

The export capability of Boeing, a premier manufacturer of high-value-added products that appeal to airlines worldwide, has been a significant part of achieving one of the Obama administration's key economic goals: spurring job creation. In his 2010 State of the Union address, President Obama set an ambitious target of creating 2 million jobs by doubling U.S. exports by 2015. Last summer the administration relaunched the President's Export Council, a panel made up of 18 private-sector members, eight congressional members and 10 executive branch members and chaired by Boeing CEO James McNerny. To support U.S. exports, the administration has ramped up federal lending to export-related firms—with more than three-quarters of all U.S. Export-Import Bank loan guarantees during the first half of Obama's term in office going to—you guessed it—Boeing.

The last thing the weak American economy needs is a political dispute that increases uncertainty for the nation's leading exporting company, involving one of the nation's highest-value-added, most highly engineered export products. Yet—because of corporate conduct that, the NLRB alleges, crossed the line into illegality—that's precisely what the U.S. economy faces.

Boeing has staked billions of dollars on the 787. But the NLRB's legal complaint against Boeing, which alleges that Boeing engaged in unfair and illegal labor practices in its 787 decision-making process, is focused on where, how and by whom the 787 will be built. But there is an important legal principle at stake here, too. For all the political sound and fury surrounding the NLRB complaint, by the time it is concluded, perhaps years from now, the case could clarify a long-standing ambiguity in federal labor law: where the dividing line is between workers' right to organize unions and companies' right to decide where to locate factories.

Even if the outcome does not produce greater legal clarity, the controversy will likely focus public attention on the pattern of inconsistent regulatory rulings at the NLRB. The agency's interpretation of federal labor law has changed time and time again over the past three decades all too predictably. The board has interpreted the law to fit the beliefs of the political party that controls the White House, adopting strongly pro-corporate positions during Republican administrations, then strongly pro-labor positions during Democratic administrations.

The volume of change under the current NLRB—swinging to the right in the Bush era, and dramatically to the other side in this Obama era—have created an uncertain regulatory environment with continuous wholesale revisions of precedent, says Glenn Spencer, executive director of the U.S. Chamber of Commerce's Workforce Freedom Initiative (WFI). “You just don't know what the next regulatory tidal wave might be.”

Peter N. Kirsanow, a former Republican member of the NLRB board who was nominated by President George W. Bush, has witnessed the board's oscillations of policy first hand. As an example, he pointed to the Weingarten case—involving meetings between an employee and a manager in which a disciplinary action might be expected to occur. Democratic-led boards routinely set the ground rules for such meetings to allow employees to be accompanied by a union representative; Republican-led boards have regularly overturned that position, limiting union representation.

The ever-changing rules are “largely because of the politicized nature of the nomination process [in the Senate],” explained Kirsanow, who left the NLRB in 2008, returning to Cleveland to practice labor law. “In the 1980s it became increasingly difficult for nominees to gain confirmation. So the White House started to put them forward in a package”—matching two members of the president's party with one member of the out-of-power party—“to increase the probability that they would be confirmed together.”

Short of changing the substance of the National Labor Relations Act itself—an extremely unlikely scenario, given today's political polarization over federal labor law—Kirsanow sees no prospect of the tug-of-war ending anytime soon.

The Boeing case has become a classic illustration of what can happen when unclear federal labor law meets volcanic politics—and when the intricacies of regulatory enforcement are hit by the whirlwind of accept-no-compromise politics, and a surprising corporate public-relations blunder.

THE LAW THAT FEW LIKE

The NLRB's legal action against Boeing is based on its interpretation of several sections of the National Labor Relations Act (NLRA) of 1935, a law that has remained controversial ever since the New Deal. The law enshrines workers' right to form a union; to bargain collectively for wages and better working conditions; to strike, if they choose to do so; and to be free from employers' retaliatory action for exercising their legally protected rights.

Three years late, the Seattle unveiling of the first Dreamliner on July 8, 2007.

That's the theory, anyway. In reality, organized labor and pro-business groups have been fighting over just about every aspect of the law since President Franklin Roosevelt affixed his signature to it in the depths of the Great Depression.

Simply put: Many in organized labor seem to believe the law didn't go nearly far enough in empowering workers. Many in the business world seem to have never accepted the legitimacy of even having a law that aims to protect the rights of labor.

The task of interpreting and enforcing the law falls to the NLRB—a small and usually low-profile agency, beyond direct White House control but subject to its influence, that has been the scene of nearly continuous confrontations between labor and business since the era of FDR.

In the Boeing case, the procession of facts is clear, even if the boundaries between legal and illegal corporate conduct are open to interpretation.

At the turn of this century, Boeing was struggling to find a replacement for its aging 747 and 767 models—long-range aircraft that appeal to airlines flying international routes. Designing and producing the 787 was a bold bet for a company that seemed adrift, and that had watched its European competitor, Airbus, gradually gain an increasing share of the global aviation market.

In December 2003, Boeing announced the 787 would be built at its factory in Everett, Washington, a unionized facility where workers had been represented by the machinists union since World War II. The Seattle area has a vivid history of labor-union activism, and Boeing had endured three machinists' strikes since 1989 during contract negotiations. But with Boeing's vision of the 787 as a showcase of next-generation technologies, the Dreamliner's production seemed like a long-term source of high-wage, high-skilled jobs for the Puget Sound region.

Almost from the start of aircraft production, however, Boeing was frustrated by technical delays and redesign complications having nothing to do with union activity in 2006, 2007 and 2008. The 787 project fell further and further behind schedule (see “A 'Dreamliner' Timeline,” page 20). With its Dreamliner customers eager to have their orders delivered, Boeing was intent on hastening production. But when the machinists' contract expired in 2008, the union called a strike. And the eight-week strike, resolved on Nov. 1, 2008 and costing $1.8 billion, inflicted an additional severe setback to Boeing's 787 production schedule.

Late 2008 and early 2009 saw further redesign and production delays, causing additional slippage in the 787 schedule. Eager to meet its anxious customers' delivery schedules, Boeing decided that it would need to create a second production line. The result was a series of ill-advised communications from Boeing that would later become pivotal in the NLRB legal process.

In a conference call on Oct. 21, 2009, while reviewing the company's quarterly earnings, Boeing CEO Jim McNerney spoke of “diversifying [Boeing's] labor pool and labor relationship,” and discussed the possibility of moving the 787 Dreamliner work to South Carolina because of “strikes happening every three to four years in Puget Sound.” His comments were reported in the local news media, and the conference call was posted on Boeing's Intranet, where all its employees could see the CEO's remarks about strikes.

On Oct. 28, 2009, the company announced the second production line would be in North Charleston, South Carolina. The line would be at a non-union factory in a so-called “right-to-work” state, where employees could not be forced to join a labor union. The state and local governments in South Carolina had been eager to gain the high-wage jobs the 787 production line and its related suppliers would bring. So much so, they offered Boeing a package of tax abatements, credits and incentives reportedly worth more than $900 million.

Boeing then proceeded to very publicly explain why it had made its decision. It issued a “787 Second Line, Questions and Answers for Managers” document, giving its managers a way to explain the situation to employees. Among the points in the document, as the NLRB later described it, Boeing told its executives “that its decision to locate the second 787 Dreamliner line in South Carolina was made in order to reduce [Boeing's] vulnerability to delivery disruptions caused by work stoppages.”

Later, a local newspaper asked a senior Boeing executive why Washington had not been selected for the second production line. In an interview videotaped on March 1, 2010, Boeing Executive Vice President Jim Albaugh told The Seattle Times: “The overriding factor [in the decision to locate the line in South Carolina] was not the business climate. And it was not the wages we're paying today. It was that we can't afford to have a work stoppage every three years.”

By that time, Boeing was already beginning to invest about $750 million to build the new production line in South Carolina—slated to open in 2011—and had hired about 1,000 non-union workers to staff it.

District 751, representing the machinists who would have benefited if the production had stayed in Seattle, filed a charge with the NLRB on March 26, 2010, alleging that Boeing's decision in October 2009 to locate the second production line in South Carolina was a retaliatory measure—punishing members of the union for going on strike in 2008. Since it is illegal for companies to take retaliatory measures against workers who assert their legal rights, including the right to strike, the union claimed that Boeing had engaged in unfair and illegal labor practices. The three sets of remarks by McNerny, in the Q&A document, and by Albaugh more than hinted, the union said, at an illegal motive of retaliation for the strike and coercion to avoid future strikes.

The NLRB legal staff weighed the case for more than a year—with Boeing's new North Charleston plant, all the while, under construction. Also under way were settlement talks between Boeing and District 751, with the Acting General Counsel of the NLRB, Lafe Solomon, urging a settlement. Both sides claimed they were hoping to find a resolution, despite disparate positions.

The NLRB legal review continued moving forward, and Solomon eventually argued to the NLRB that the union's charge was valid. On April 20, the NLRB filed a legal complaint against Boeing: It asserted that there was “reasonable cause to believe that Boeing had violated two sections of the National Labor Relations Act because its statements were coercive to employees and its actions were motivated by a desire to retaliate for past strikes and chill future strike activity.”

If the NLRB's assertion was emphatic, its acting general counsel's proposed remedy was breathtaking: He proposed that all 787 production work be moved back to the Washington state plant. Boeing's new $750 million South Carolina investment, in that case, would have been futile.

With 827 Dreamliners on order, with the plane three years behind schedule, and with about $162 billion in orders backed up, Boeing now faces the possibility of a draconian punishment, if the NLRB's assertion is upheld.

“The general counsel has gone a little too far in respect to the Boeing case,” says Kirsanow, noting that the NLRB is forbidden to impose a remedy that would be “unduly burdensome.” An NLRB decision that undermined Boeing's vast new investment in South Carolina surely would be seen as such, he says.

The legal dispute began in Seattle in June and is being argued before an NLRB administrative-law judge. Unless the two sides reach a settlement of the case, the legal sparring in that forum could prolong the case into 2012. The judge's decision will then return to the NLRB for the agency's official decision—but, whichever way that decision goes, the losing side is likely to appeal the case to the federal appeals courts. In theory, the case could continue to be appealed all the way up to the U.S. Supreme Court.

The Dreamliner has been afflicted by nagging design delays.

Barring a settlement that might put the matter to rest, the case could take a long, long time to reach a resolution through legal channels. That would prolong the uncertainty over where and how fast the 787 will eventually be built.

ROLLING OUT THE PR GUNS

Meanwhile, the confrontation has exploded on the political and public-relations battlefields. Both sides are well-armed for that kind of combat. In their 76 years of jousting over the meaning and the enforcement of the NLRA, the two antagonists—business and labor—and their allies have built up vast arsenals of political ammunition, in Washington, D.C., ready for deployment whenever either side decides to pick a fight.

“NLRB's Overreaching Agenda Hurts Jobs and Economic Growth,” declared NAM's website. A NAM advertising campaign asserted darkly that “unaccountable bureaucrats in Washington are now trying to misuse their regulatory powers to dictate where a business can be located and who they can hire—basically, who can succeed? The question is: Who's next?”

According to Joe Trauger, NAM's vice president of human resources policy, the association believes the NLRB has greatly overstepped its bounds. “If the NLRB prevails in this case . it's going to allow this board to step in at any time and second-guess the basic and fundamental business decisions that companies make every day.”

Echoing the NAM, the U.S. Chamber of Commerce launched an advertising campaign that urged, “Stop Big Labor's regulatory overreach.” Like other pro-business advocacy groups, it opposes not just the NLRB's complaint against Boeing but a series of NLRB regulatory changes enacted this year, on the timing of unionization elections and the permissible size of bargaining units.

The Boeing case “is a completely unwarranted complaint,” says Spencer of the WFI, declaring that “there was no retaliation at all” by Boeing against the labor union.

“The entire case hinges around statements by the company's executives about ensuring labor stability,” says Spencer. “But mitigation of strikes is a legitimate concern. It is within an employer's right to mitigate strike activity.”

Kirsanow, the former NLRB board member, agreed. “From everything I've read about the case, Boeing has a fairly decent case to make. It doesn't look as if they've said anything threatening.”

Advocates for organized labor, meanwhile, are equally adamant. “The Conservative War on Workers' Rights,” an issue-brief by the Center for American Progress Action Fund, the advocacy arm of a prominent liberal think tank, argued “conservatives' efforts to pressure the NLRB to drop the investigation is a continuation of their aggressive war against workers.”

Similarly, the AFL-CIO website featured commentaries that saw no shades of grey in NLRB-related issues. Instead, one AFL-CIO blog post lamented that “the check and balance [that the NLRA] offered to employees—the opportunity to form a union and engage in collective bargaining—is now unattainable . because the process for exercising that right has become a minefield and a marathon, and many employees who might want to explore the option of organizing a union simply choose not to because the price is too high.”

Josh Goldstein, an AFL-CIO spokesman, says the case itself is a very run-of-the-mill, standard-procedure case, dismissing the “political circus” on Capitol Hill over the House measure. “But the company and its hugely influential allies in Congress have used it to promote a political agenda that has nothing to do with the case itself,” he says. “They've tried to make it a 'right-to-work' issue, but that really doesn't matter in this case. It's illegal to retaliate against workers for taking 'concerted action' in defense of their rights.”

DRIFTING TOWARD AGENCY GRIDLOCK

Even before the Boeing case blew up, the legal decision-making of the NLRB has been understandably questioned and the agency's stature diminished by the unrelenting political partisanship from the White House, whose occupant appoints the NLRB's members.

The NLRB's steady shifts of 3-to-2 partisan majorities have meant that its legal inclinations track the outcome of each presidential election. Similar labor-law cases have been re-argued and reversed and then re-asserted, as the NLRB has rhythmically produced a reliable majority for the position of the president's party. The result of these partisan oscillations has been a body of national labor law that is never settled and always in flux, and an NLRB that has come to reflect not the considered judgment of legal scholars but the polarized politics of the capital.

Unless one party or the other eventually gained a filibuster-proof 60-vote majority in the Senate, and then made changing federal labor law a top priority, it is difficult to envision the gridlock easing, said Kirsanow.

And now, exactly because of the gridlock that has afflicted Washington, the NLRB seems all but certain to find itself immobilized, with no majority, and a 1-1 standoff between a Democratic member and a Republican member. If no new presidential appointments are made, and that seems increasingly likely, only two seats on the NLRB will be occupied as soon as December 2011. Such a deadlock could leave enforcement of the labor laws adrift, and could conceivably invite an institutional crisis for the agency.

The NLRB deadlock is evolving because, among the five seats on the NLRB, three seats are customarily allotted to the party that occupies the White House and two seats are allotted to the out-of-power party. The full complement of five serving board members has lately existed only in theory. One Republican seat has now been vacant for more than a year, since the departure of Peter C. Schaumber, because Obama's nomination of Terence F. Flynn awaits Senate confirmation. One Democratic seat became vacant on Aug. 27 when former Chairwoman Wilma Liebman's term expired, with Obama making no nomination to fill that position. Today's three-member board will be reduced to two members in December, when the term of a Democratic appointee, Craig Becker—whom Obama named in a controversial “recess appointment” last December, after Republican senators had blocked his nomination—will come to an end and cannot be renewed.

At that point, the NLRB will have only two members, because Republican senators have declared that they are not inclined to confirm any Obama nominees (and because they are likely not to go into a complete year-end recess, giving Obama the chance to make another Becker-like “recess appointment”). The NLRB will then be left at only two: Democrat Mark Gaston Pearce, who has chaired the panel since Liebman's departure, and Republican Brian Hayes.

Having only a two-member board will make the NLRB subject to a recent U.S. Supreme Court ruling, which held that a two-member board—unable to form a majority on a board intended to have five members—cannot engage in any rulemaking. Although the NLRB legal staff can continue hearing cases of individuals' workplace allegations, the NLRB would be effectively moribund until new members can be added after the next presidential election. So the atmosphere of partisan gridlock could effectively mean that, beginning in December 2011, the NLRB will enter a year-long state of suspended animation. This, of course, will delay any agency movement on the Boeing case.

ECONOMIC DAMAGE FROM A PARALYZED GOVERNMENT

By pursuing its legal complaint against the Boeing Company, the NLRB has certainly put the Obama administration in an awkward political position. With a presidential election year set to begin—and with the U.S. economy remaining fragile, and perhaps facing the prospect of a prolonged slump—the prospect of leaving the production of Boeing's 787 in legal limbo is an embarrassing reflection of the years of partisan infighting that have hobbled the NLRB as an effective arbiter of the nation's labor laws. While Republican candidates in the South Carolina presidential primary may savor the thought of using the Boeing case as a political bludgeon with which to assail the Obama administration and the NLRB, their rhetorical volleys will offer little comfort to the South Carolinians and those of Washington state whose employment hopes hinge on an eventual Dreamliner decision.

And meanwhile, the production schedule of the 787—and the flow of billions of dollars of revenue from the company's worldwide sales of the plane—has been affected by the regulatory uncertainty. That uncertainty has also cast doubt on the pace of job creation in one of America's most significant export industries.

“Regulatory uncertainty is a risk factor—it's a cost,” cautioned Kirsanow. As companies weigh the continued uncertainty in the NLRB's approach, employers start to wonder if they can make a commitment to new production facilities in the United States. “That lends an added level of uncertainty. Even if we were in a robust economic environment, uncertainty can be a deal-killer. In times like these, it sure doesn't help with job creation.”

The threat of prolonged damage to Boeing, to its skilled work force and to the nation's output of a high-value export product—inflicted as a result of prolonged partisan bickering over a besieged federal agency—is a sad testament to the nation's chronically dysfunctional political culture.