Charter School is an Employer under the NLRA: NLRB

Practical Law Legal Update 0-523-3443 (Approx. 7 pages)

Charter School is an Employer under the NLRA: NLRB

by PLC Labor & Employment

Key Litigated Issue

In Chicago Mathematics & Science Academy Charter School, Inc., the NLRB considered whether a charter school falls within its jurisdiction. Specifically, the key litigated issue was whether the school was an employer within the meaning of Section 2(2) of the NLRA, or a political subdivision beyond the NLRB's jurisdiction.

Background

The Chicago Mathematics & Science Academy (CMSA) is a private, nonprofit entity that operates a charter school in Chicago, Illinois. CMSA received its charter to operate the school from Chicago Public Schools, which is a division of the Board of Education of the City of Chicago. The charter is for a term of five years, and Chicago Public Schools may revoke the charter if CMSA violates any of its terms, including by:

Failure to meet pupil performance or fiscal management standards.
Violation of applicable laws.

The charter establishes guidelines for the school's:

Curriculum.
Calendar.
Educational goals and objectives and pupil performance standards.
Student enrollment.
Disciplinary system.

The charter requires CMSA to have governance and managerial procedures and financial controls. The charter also provides that Chicago Public Schools must approve any contract that CMSA enters for school management and operations services.

CMSA has contracted with Concept Schools, a nonprofit charter school management organization, to provide management services for the school, including financial reports and the compensation package offered to CMSA employees. CMSA's principal and business manager were hired by and are employees of Concept Schools. However, CMSA is the employer of the school's teachers and most of the other workers on its premises. No member of CMSA's board of directors works for the government.

CMSA receives approximately 80% of its operating budget from Chicago Public Schools, and the remaining 20% comes from the federal and Illinois governments. CMSA must submit a proposed budget to Chicago Public School, but the budget is approved by CMSA's board of directors.

CMSA is subject to the student health and safety laws set out in Illinois law and the Chicago Building Code. Furthermore, CMSA must:

Administer standardized tests and participate in assessments required by Illinois law.
Provide special education services under federal and Illinois education laws.

In June 2010, a labor union, the Chicago Alliance of Charter Teachers & Staff, filed an election petition with the Illinois Educational Labor Relations Board seeking to represent CMSA's teachers. Soon afterward, CMSA filed an election petition with the NLRB, arguing that the it is an employer under the NLRA. An entity is not an employer under the NLRA if it is a political subdivision of a state.

In NLRB v. Natural Gas Utility District of Hawkins County (Hawkins County), the Supreme Court approved a test for determining whether an entity may be considered a political subdivision of a state, and therefore beyond the jurisdiction of the NLRB. Under the Hawkins County test, an entity may be considered a political subdivision if it is either:

Created directly by the state so as to constitute a department or administrative arm of the government.
Administered by individuals who are responsible to public officials or to the general electorate.

An NLRB Regional Director concluded that the charter school is a political subdivision of the state of Illinois under the first prong of the Hawkins County test because:

CMSA operates the school only through its charter agreement with the Chicago Board of Education.
CMSA and its board of directors "are subject to statutory restrictions, regulations, and privileges that a private employer would not be subject to and negate a finding that CMSA is a private employer."
Under the Illinois Charter Schools Law, charter schools function "within the public school system."
The governing body of an Illinois charter school is subject to the Illinois Educational Labor Relations Act.
The Chicago Public Schools chartered and oversees CMSA's operations, and provides funding to CMSA.

In light of these factors, the regional director concluded that CMSA was created directly by the State of Illinois so as to constitute a department or administrative arm of the State.

The regional director also concluded that the charter school is a political subdivision of the state of Illinois under the second prong of the Hawkins County test, even though CMSA's board of directors is not appointed by, or subject to removal by, public officials, because the CMSA board is responsible to public officials or the general electorate. The regional director relied on factors including:

The Chicago Board of Education's oversight and funding of CMSA.
CMSA board members' accountability to the Chicago Board of Education.

Therefore, the Regional Director concluded that charter school is administered by individuals who are responsible to public officials or to the general electorate. The Regional Director dismissed CMSA's election petition.

CMSA filed a request for review of the Regional Director's decision, and the Board granted review in January 2011. On appeal, CMSA and amici argued that the election petition should be reinstated because CMSA:

Was not created by the state of Illinois. Federal law determines whether an entity is a political subdivision or a private employer subject to the NLRA, and the intentions of state law do not control. An employer is exempt from the NLRA as a political subdivision only when it is directly created by a government entity. Here, CMSA was created by private individuals, not by the government of Illinois. If its charter were revoked, CMSA would still exist as a corporate entity. The Illinois Charter Schools Law only provides a legal framework for CMSA's operations.
Is not administered by individuals who are accountable to Illinois public officials or general electorate. The operative test is whether CMSA's governing body was appointed by public officials or private individuals. CMSA's board of directors is selected and retained by the board itself. The inquiry ends there; NLRB precedent provides other factors that the Board may consider, but is not required to do so. Furthermore, the Board routinely exercises jurisdiction over private employers that are government contractors.

The union and its amici argued that the CMSA is a political subdivision because:

CMSA would not be able to operate the school without the charter provided by Chicago Public Schools. Therefore, CMSA is a public educational employer and part of Illinois' public school system.
CMSA's budget is provided almost entirely by governmental funds.
CMSA's budget and finances are scrutinized by Chicago Public Schools.
CMSA's actual operations show that it is an administrative arm of the state that provides educational services to the public.

In regard to the second prong, the Regional Director properly considered factors suggesting public status in addition to the appointment methods of CMSA's board of directors.

Outcome

The Board issued a decision in this case dated December 14, 2012. The Board scrutinized statutes regulating the formation of CMSA and unanimously found that CMSA was an employer covered under the NLRA. Regarding the first prong of the Hawkins County test, the Board found that:

CMSA was created by private individuals, and not by the government. There is no Illinois statute directing the creation of charter schools or that directly creates charter schools. The Illinois Charter Schools Law would do nothing to bring charter schools into existence, without the initiative of private individuals. Here, only after CMSA was privately created did it establish the school under the Charter Schools Law.
Although employing entities are exempt political subdivisions when created pursuant to legislation, the Board has consistently held that nonprofit entities created by private individuals are not exempt entities under Hawkins County, even if they receive public funding or contract with a governmental entity to provide public services. The "plain language" of Section 2(2) of the NLRA does not exempt government contractors from NLRB jurisdiction (Research Foundation of the City University of New York).

The Board found that CMSA did not meet the definition of a government contractor under the second prong of the Hawkins County test, because:

Relying on the Board's nonprecedential decision in Charter School Administration Services (CSAS), an entity is subject to the Board's jurisdiction when the appointment and removal of a majority of the entity's board of directors is controlled by private individuals and not public officials. Stated otherwise, the determinative factor is whether the board's membership is set by law or the employer's governing documents. In CSAS, the Board only considered:
- the composition of the employer's board of directors;
- how the directors were selected; and
- to whom they were accountable.
CMSA's board members are selected and removed by private individuals, not government officials, and the changes are made according to the entity's bylaws, not public law. CMSA is not administered by individuals who are responsible to government officials or the general electorate.
Other factors are not dispositive here. Although in previous decisions the Board has referred to other factors for the second prong of the Hawkins County test, it has only done so after finding that an entity is a political subdivision based on the method of appointment and removal from the board. How the board of directors is formed is the "critical and determinative" factor in this analysis.

A majority of the Board (Member Hayes dissented):

Found that it would be appropriate for the NLRB to exercise jurisdiction over this charter school.
Reinstated the petition and directed the NLRB regional director to process the petition under the NLRB’s election procedures.

The Board majority concluded that it was appropriate to exercise jurisdiction over CMSA because:

The Board "routinely asserts jurisdiction over private entities that provide services, under contract, to governmental bodies."
Despite the arguments of the union's amicus, no governmental entity has argued that the state's special relationship with charter schools requires it to regulate CMSA's labor relations. Unlike the situation in Temple University, where Pennsylvania exercised great control over Temple University's board of directors, CMSA's board of directors are privately appointed. Temple's board included public officials, but only private citizens serve on CMSA's board.
The Board does not assert jurisdiction over public schools established by state and local governments because they do not fall in the definition of employer under Section 2(2) of the NLRA. CMSA is not a public school, and was not established by state or local government.
No state or local governmental entity has petitioned the Board for a cession agreement, by which the Board would consider ceding jurisdiction over this case to Illinois.

In his dissent, Member Hayes asserted that the Board should decline to exercise jurisdiction over CMSA because of CMSA's:

Official status as a public school. Illinois law defines charter schools as "educational employers" that are subject to state labor laws.
"[I]ntegrated and highly regulated relationship" with the Illinois state government and Chicago Public Schools. This type of relationship exists in the racetrack industries. Consequently, the Board has declined jurisdiction in those industries.
"Fundamentally local nature."

Practical Impact

For the first time ever, the NLRB has exercised jurisdiction over a charter school. The Board's determination is fact-specific and does not suggest that the NLRB will categorically exercise jurisdiction over other charter schools, particularly when other schools:

Are formed under different types of laws.
Have different types of relationships to public sector entities.

Charter School is an Employer under the NLRA: NLRB | Practical Law