NLRB's Retreat from SpaceX: A Shift in Labor Enforcement and Corporate Legal Strategy

The National Labor Relations Board (NLRB) has faced a seismic shift in its enforcement capabilities following a landmark August 2025 ruling by the U.S. Court of Appeals for the Fifth Circuit. The decision, Space Exploration Technologies Corp. v. NLRB, declared the NLRB's structure-specifically its removal protections for board members and administrative law judges (ALJs)-likely unconstitutional under Article II of the U.S. Constitution. This ruling effectively halted NLRB proceedings against SpaceX and two other companies, creating a precedent that has since been leveraged by employers in the Fifth Circuit to challenge labor enforcement actions. For tech and private equity firms, this development marks a pivotal moment in a politicized regulatory environment, where legal strategies are increasingly shaped by jurisdictional arbitrage, state-level labor law exploitation, and the erosion of federal labor protections.

The Constitutional Challenge and Circuit Split

The Fifth Circuit's August 2025 decision centered on the argument that the NLRB's for-cause removal protections for ALJs and board members violate the President's constitutional authority to oversee executive officers. The court reasoned that these protections insulate the NLRB from executive control, thereby violating the separation of powers. This ruling aligns with the Supreme Court's earlier decision in Jarkesy v. SEC (2024), which struck down similar removal protections for SEC ALJs. The Fifth Circuit's decision has since been applied to pause NLRB investigations in Texas, Louisiana, and Mississippi, creating a jurisdictional vacuum for employers in these states.

However, the Ninth Circuit has rejected such challenges, affirming the NLRB's authority in cases like NLRB v. North Mountain Foothills Apartments LLC (2025). The Ninth Circuit emphasized that the NLRB's structure and remedies are consistent with longstanding precedent, including Humphrey's Executor v. United States (1935), which upheld the independence of quasi-judicial agencies. This circuit split has created a fragmented legal landscape, with employers in the Fifth Circuit able to exploit constitutional objections to delay or halt NLRB proceedings, while those in the Ninth Circuit face stricter judicial scrutiny according to legal analysis.

Corporate Legal Strategies in a Fragmented Regulatory Environment

Tech and private equity firms have swiftly adapted to this uncertainty by tailoring their legal strategies to jurisdictional differences. For example, SpaceX leveraged the Fifth Circuit's ruling to secure a December 2025 dismissal of an NLRB case against it, with the agency voluntarily dropping its complaint. This outcome underscores how employers can use constitutional challenges as a tactical tool to avoid costly labor disputes. Similarly, Amazon and other companies have filed lawsuits challenging the NLRB's structure, signaling a broader trend of corporate legal teams prioritizing structural objections over compliance.

Beyond litigation, firms are also exploiting state-level labor laws to circumvent federal oversight. California's Assembly Bill 288, which expanded the jurisdiction of the state's Public Employment Relations Board (PERB) to handle private-sector disputes when the NLRB is unable to act, has been met with legal challenges from the NLRB, which argues it violates federal preemption. While the Supreme Court has yet to rule on the constitutionality of such state laws, private equity firms are already positioning themselves to benefit from a potential shift toward state-level labor governance. For instance, companies operating in states with pro-employer labor laws are restructuring operations to align with local regulations, creating a patchwork of compliance standards.

Operational Adjustments and Risk Mitigation

The NLRB's ongoing lack of a quorum-due to vacancies on the board-has further exacerbated uncertainty, prompting employers to adopt proactive risk management strategies. Tech companies, in particular, are revising workplace policies to minimize exposure to unfair labor practice (ULP) charges. For example, firms are tightening severance agreements and arbitration clauses to avoid disputes that could trigger NLRB investigations. Additionally, the Fifth Circuit's ruling has led to the adoption of "reservation language" in NLRB proceedings, where employers cooperate with investigations while explicitly reserving constitutional objections for future appeal.

Private equity firms are also leveraging the legal uncertainty to reshape workforce structures. The rise of Short-Term Equity Plans (STEPs)-a private equity-backed variant of Employee Stock Ownership Plans (ESOPs)-has gained traction as a tool to align worker ownership with corporate interests while avoiding the complexities of traditional unionization. These plans, which offer one-time payouts contingent on liquidity events, allow firms to maintain control over governance while appearing to embrace worker-centric models. According to analysis, these plans are increasingly being adopted by private equity firms as a strategic tool.

Future Outlook and Investment Implications

The Supreme Court's eventual resolution of the NLRB's constitutional challenges will likely determine the trajectory of labor enforcement in the U.S. If the Court upholds the Fifth Circuit's ruling, the NLRB's removal protections could be invalidated, potentially leading to a restructured agency or the erosion of federal labor protections altogether. This scenario would empower states to create divergent labor regimes, increasing compliance costs for multistate employers. Conversely, a Ninth Circuit-style ruling affirming the NLRB's authority would reinforce federal oversight, favoring companies that prioritize unionization and collective bargaining.

For investors, the key takeaway is the growing importance of jurisdictional arbitrage in corporate legal strategy. Tech and private equity firms with operations in the Fifth Circuit are well-positioned to exploit the current legal vacuum, while those in the Ninth Circuit must navigate stricter enforcement. Additionally, the rise of state-level labor laws and alternative governance models like STEPs presents both opportunities and risks for long-term investment. As the regulatory landscape continues to evolve, firms that proactively adapt to these shifts will gain a competitive edge in a politicized environment.