S.E.C. v. Federal Labor Relations Authority

• Decision Date: 12 June 2009
• Docket Number: No. 08-1256.,No. 08-1294.,08-1256.,08-1294.
• Citation: 568 F.3d 990
• Parties: SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. FEDERAL LABOR RELATIONS AUTHORITY, Respondent. National Treasury Employees Union, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

568 F.3d 990

SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. FEDERAL LABOR RELATIONS AUTHORITY, Respondent.

National Treasury Employees Union, Intervenor.

No. 08-1256.

No. 08-1294.

United States Court of Appeals, District of Columbia Circuit.

Argued May 5, 2009.

Decided June 12, 2009.

On Petition for Review and Cross-Application for Enforcement of a Decision and Order of the Federal Labor Relations Authority.

Samuel M. Forstein, Assistant General Counsel, Securities & Exchange Commission, argued the cause for petitioner. With him on the briefs were Andrew N. Vollmer, Acting General Counsel, and Rufus Beatty, Senior Special Counsel. Richard M. Humes, Associate General Counsel, entered an appearance.

James F. Blandford, Attorney, Federal Labor Relations Authority, argued the cause for respondent. With him on the brief were Rosa M. Koppel, Solicitor, and William R. Tobey, Deputy Solicitor.

Barbara A. Sheehy argued the cause for intervenor. With her on the brief were Gregory O'Duden and Elaine Kaplan. Barbara A. Atkin entered an appearance.

Before: GINSBURG, BROWN and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge BROWN.

Concurring opinion filed by Circuit Judge KAVANAUGH.

BROWN, Circuit Judge:

This is the sort of dispute that could only arise between public employees and a governmental agency. The Securities and Exchange Commission (SEC or Agency) was eager to pay its employees more money. The National Treasury Employees Union (NTEU or Union) complains the SEC implemented the raises too quickly. The Federal Labor Relations Authority (FLRA or Authority) agrees with the Union and has ordered the SEC to provide back pay to atone for the affront. Counterintuitive though it may be, we agree the FLRA has properly resolved this odd controversy so we deny the petition for review and grant the Authority's cross-application for enforcement.

I.

This is what happened. After years of struggling with high attrition from the ranks of its professional employees (attorneys, accountants, and examiners), the SEC began focusing on pay disparities between itself and other financial regulatory agencies, such as the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. Since 1989, these other agencies had been authorized to determine their own compensation and benefit levels without regard to the General Schedule, which continued to define pay grades for SEC employees. Although the SEC took advantage of as many compensation and benefit flexibilities as existing law allowed, including special pay rates for its most sought-after employees, by 2001 — with its workload increasing dramatically and staffing shortages reaching crisis levels — the Agency sought legislative relief. Congress acquiesced. On January 16, 2002, it passed the Investor and Capital Markets Fee Relief Act, Pub.L. No. 107-123, 115 Stat. 2390 (2002), which gave the SEC authority to set and adjust its employees' pay rates without regard to the General Schedule.

Both the Union and SEC management had eagerly anticipated the passage of this Act. The Union signaled the very next day, January 17, its willingness to begin bargaining. By March 6, the Agency had submitted its Implementation Plan to Congress and, on April 10, the Agency convened initial discussions with the Union. On April 18, SEC Chairman Pitt sent out an email to all employees stating the SEC hoped to implement the new system on May 19. Formal bargaining began April 22. Negotiations reached an impasse and the Union filed for assistance with the Federal Services Impasse Panel (Panel) on May 15. The SEC and the Union were unable to break the impasse when they met again on May 16 and 17, at which point management notified employees that it would unilaterally implement the SEC's proposed pay plan effective May 19. The raises became effective as of May 19, but the actual increased paychecks did not begin to arrive until August.

On November 8, 2002 the Panel resolved the bargaining impasse, ordering adoption of the SEC's proposal with only slight modifications. On November 18, the NTEU filed two unfair labor practice charges, alleging the SEC violated Sections 7116(a)(1) and (5) of the Federal Service Labor-Management Relations Statute (the Statute) by unilaterally implementing the new pay plan and ending automatic annual within-grade increases (known as WIGIs) before the completion of the bargaining process. The General Counsel filed a complaint and, after a full evidentiary hearing, the ALJ found the SEC had violated the Statute. The ALJ awarded retroactive within-grade increases to employees who were entitled to them between May 19 and November 8, and ordered the SEC to recalculate those employees' placement on the new pay schedule taking such within-grade increases into account. The Authority concluded the record fully supported the ALJ's findings and that the recommended remedy was not contrary to the Back Pay Act, 5 U.S.C. § 5596.

The SEC petitions for review; the Authority cross appeals for enforcement of its order.

II.

We review the FLRA's conclusion that the SEC engaged in an unfair labor practice under the familiar arbitrary and capricious standard; we determine only whether the FLRA has "offered a rational explanation for its decision, whether its decision is based on consideration of the relevant factors, and whether the decision is adequately supported by the facts found." Nat'l Ass'n of Gov't Employees, Local R5-136 v. FLRA, 363 F.3d 468, 474-75 (D.C.Cir.2004) (citing, inter alia, Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)).

The FLRA's conclusion that the SEC engaged in an unfair labor practice was neither arbitrary nor capricious. As a preliminary matter, we reject the SEC's claim it is entitled to deference from the FLRA with respect to its chosen affirmative defense, that the unilateral implementation of the new salary system was necessary to the functioning of the agency. The SEC concedes it can cite no authority in support of its request. We conclude any deference to the SEC would be inconsistent with the defense being an affirmative one; in this matter the SEC is not an agency entitled to deference, but rather appears as an employer. Indeed, under the arbitrary and capricious standard of review that governs, it is the FLRA that receives deference when we review petitions challenging its conclusions under the Federal Service Labor-Management Relations Statute. See, e.g., HHS Family Support Admin. v. FLRA, 920 F.2d 45, 48 (D.C.Cir.1990) ("[W]e must defer to the FLRA's interpretation of its own statute as against competing executive branch determinations.") (citing cases).

The SEC simply failed to meet its burden to prove its chosen affirmative defense — that the unilateral implementation of the new salary system on May 19, 2002 was necessary to the functioning of the agency — by a preponderance of the evidence. As the Authority has explained before, the rule governing this affirmative defense is that, pending the completion of the mandatory bargaining process:

[T]he status quo must be maintained to the maximum extent possible, that is, to the extent consistent with the necessary functioning of the agency. When an agency chooses to avail itself of this exception and thus to alter the status quo, it must be prepared to provide affirmative support for the assertion that the action taken was consistent with the necessary functioning of the agency if its actions were subsequently contested in an unfair labor practice proceeding. The Authority has also indicated that the phrase, "consistent with the necessary functioning of the agency," may be accurately paraphrased as "necessary for the [agency] to perform its mission."

Def. Logistics Agency Def. Indus. Plan Equip. Ctr. Memphis Tennessee, 44 F.L.R.A. 599, 616-17 (1992) (citing Dept of Justice, U.S. Immigration & Naturalization Serv., U.S. Border Patrol, Laredo, Texas, 23 F.L.R.A. 90, 90 (1986)) (internal citations, footnotes and quotations omitted).

The SEC complains the FLRA purported to apply a mere preponderance burden of proof in determining whether the Commission sustained its affirmative defense, but effectively imposed a much more demanding one. In context, though, it seems clear the ALJ was describing the affirmative defense itself as demanding, not the employing agency's burden. From the Commission's point of view, this may be a distinction without a difference. Consider, however, that while the prosecution in a criminal case always bears the burden of proving the elements of a crime beyond a reasonable doubt, the substantive content of the elements to be proven may vary; for example, from a reckless state of mind to a knowing and intentional one. While the burden is the same, the standard itself is different, and it is easier for a litigant to prove some than others.

To successfully invoke the "necessary functioning" exception, an agency must show the change is a response to "an overriding exigency" or similarly compelling need. 22 Combat Support Group (SAC) March Air Force Base, California, 25 F.L.R.A. 289, 301 (1987) ("While the matter was obviously important, I do not conclude it was so critical as to create an overriding exigency or other compelling reason which would justify adhering to the January 13 implementation date...."). For example, in one case the Authority rejected the defense because it did not appear that the agency "was in acute danger of being unable to perform its function without" the unilateral implementation of the change at issue. Def. Logistics Agency Def. Indus. Plan Equip. Ctr. Memphis Tennessee, 44 F.L.R.A. at 617. The SEC observes that a public agency will rarely face an exigency that threatens its ability to function. But that is only to say the "necessary functioning" exception will never be the rule. Exigency still has...