Labor & Employment Law Daily Wrap Up, LABOR—S.D.N.Y.: Policy sharply curtailing FMCS functions vacated, (Jan 5, 2026)

By Kathleen Kapusta, J.D.

The plaintiff labor unions challenged the government’s implementation of a policy to limit mediation to a subset of labor negotiations and disputes.

Granting summary judgment to a group of labor unions that sought the reversal of a policy, which was implemented in response to President Trump’s executive order and which sharply curtailed the functions of the Federal Mediation and Conciliation Service (FMCS) resulting in the dismissal of most of its staff, a federal court in New York found the unions had standing to sue, the policy was reviewable under the APA, and it was arbitrary, capricious, and not in accordance with law. In addition to vacating the policy, the court ordered the reversal of any actions taken in accordance with the invalidated policy, including the reductions in force of the FMCS staff (American Federation of Teachers, AFL-CIO v. Davis, No. 25-cv3072 (AS) (S.D.N.Y. Dec. 30, 2025)).

FMCS. Charged by Congress with “prevent[ing] or minimiz[ing] interruptions of the free flow of commerce growing out of labor disputes,” FMCS “assist[s] parties to labor disputes in industries affecting commerce to settle such disputes through conciliation and mediation.” As relevant here, FMCS can proffer its services in any labor dispute in any industry affecting commerce, either upon its own motion or upon the request of one or more of the parties to the dispute, whenever in its judgment the dispute threatens to cause a substantial interruption of commerce. In the healthcare industry, Congress has dictated that FMCS “shall promptly communicate with the parties and use its best efforts, by mediation and conciliation, to bring them to agreement.”

Executive order. In March 2025, President Trump signed Executive Order 14238, Continuing the Reduction of Federal Bureaucracy, which, among other things, directed to the maximum extent consistent with applicable law the elimination of FMCS’ “non-statutory components and functions.” In response, the agency’s acting director, in a report to OMB, stated that FMCS required a minimum of 86 mediators to fulfill its statutory functions, a reduction from the 123 employed at the time. Three days later, after a meeting with DOGE representatives, the acting director agreed to keep six mediators and lay off the rest in a RIF.

The RIF notices stated that the administration interpreted the phrase “substantial impact to interstate commerce” within the meaning of the governing statute to apply only where either: (1) “a bargaining unit of 1000 employees” was involved; or (2) “other metrics or instances as the administration may determine and communicate to FMCS” were implicated. Separately, FMCS General Counsel clarified in an internal email that the agency would “continue to be involved with healthcare strikes when the [bargaining unit] is 250 or more” employees.

Lawsuit. A group of labor unions in both healthcare and other industries that regularly engage FMCS mediators to assist in resolving labor disputes sued the acting director, the OMB director, FMCS, and OMB challenging the implementation of the policy to limit mediation to a subset of labor negotiators and disputes—those with a bargaining unit size of 1,000 or more in most industries, or 250 or more in the healthcare industry, unless unspecified other criteria are met—which led to the implementation of the RIF.

Standing. Although the government argued that the labor unions lacked standing because they did not have an “interest in vindicating the proper operation of FMCS,” the court pointed out that several of the unions alleged that the RIF led to delays in their bargaining processes, with some having scheduled bargaining sessions cancelled. And delay, said the court, is an injury to the unions given that collective bargaining is one of their principal functions. Thus, their challenge to the FMCS’s operations, the court continued, was predicated on an injury many of them suffered due to delays caused by the lack of mediators.

Also rejected was the government’s contention the unions lacked standing to “stand in the shoes of FMCS employees who have been placed on leave.” The government, the court observed, appeared to be arguing the claims were administratively channeled and had to be brought through the Office of Special Counsel (OSC), the Merit Systems Protection Board (MSPB), and the Federal Labor Relations Authority (FLRA). Acknowledging that the Supreme Court has recognized that certain claims brought by federal employees must be brought through administrative channels as a matter of statutory jurisdiction, the court pointed out that the Supreme Court has distinguished those channeled disputes from cases where “the suit is wholly collateral to a statute’s review provisions; and [where] the claims are outside the agency’s expertise.”

Finding the suit here clearly collateral to the statutes’ review provisions and outside of the relevant agencies’ expertise, the court noted that the review provisions the government cited were intended to provide employment protections for federal employees. But the challenge raised by the unions—that the RIF injured them due to a reduction in services the FMCS provides—was wholly collateral to the question of whether there were improper personnel practices. In addition, while OSC and MSPB are experts on personnel practices and the FLRA is an expert on federal agency-labor union relations, the unions raised challenges related to the propriety of the elimination of FMCS’s services, which, said the court, “are far afield of the areas that the agencies have expertise—namely, claims made by terminated employees.” Thus, the court found their claims were not channeled through the administrative process.

Final agency action. Turning to the unions’ claims under the APA, the court noted that it was limited to reviewing final agency actions. For its part, the government argued that the policy at issue did not constitute agency action at all and thus was not reviewable by the court. Disagreeing, the court found the policy limiting which negotiations qualify for an FMCS mediation is within the APA’s definition of “rule” and therefore constitutes “agency action.” “FMCS leadership,” the court explained, “has adopted what appears to be a numerical threshold under which no mediators will be provided in most cases. That qualifies as a ‘statement of general or particular applicability and future effect’ and “prescribe[s]... policy.”

Nor was the court persuaded by the government’s assertion the policy did not constitute “agency action” because it “is fundamentally a challenge to FMCS’s operations, including staffing decisions and determinations of criteria in evaluating whether to become involved in a mediation... [which] is the opposite of the discrete, circumscribed agency action that is required for review under the APA.” Rather, the court found the policy was clear and discrete and involved numerical thresholds and was a final agency action that could be challenged under the APA.

Arbitrary and capricious. Finding next that the policy was arbitrary and capricious, the court pointed out that “FMCS set fixed numerical floors on the size of bargaining units whose negotiations it was willing to mediate, and defendants do not point to any part of the record where they provide any explanation as to how the limits were determined.” Indeed, said the court, the “numbers appear to be (quite literally) arbitrary.”

Not in accordance with law. As to the healthcare industry, the court further found the policy was not in accordance with law. FMCS, the court pointed out, is statutorily required to provide mediation and conciliation services to all bargaining parties in the healthcare industry and the government’s policy limiting services to only a subset of healthcare bargaining units runs contrary to the plain text of the statute.

Vacatur. Noting, finally, that it was directed by statute to “hold unlawful and set aside agency action” found to violate the APA, the court vacated the policy and ordered the reversal of any action, including the RIF, that was taken in accordance with the policy.

The case is No. 25-cv-3072 (AS).

Judge: Subramanian, A.

Attorneys: Cole Hanzlicek (Bredhoff & Kaiser) for American Federation of Teachers, AFL-CIO, United Federation of Teachers, SEIU Healthcare Minnesota & Iowa, SEIU Committee of Interns and Residents, and Service Employees International Union, AFL-CIO. Lawrence Heath Fogelman, U.S. Attorney's Office, for U.S., Federal Mediation and Conciliation Service and U.S. Office of Management and Budget.

Companies: American Federation of Teachers, AFL-CIO; United Federation of Teachers; SEIU Healthcare Minnesota & Iowa; SEIU Committee of Interns and Residents; Service Employees International Union, AFL-CIO; Federal Mediation and Conciliation Service; U.S. Office of Management and Budget

Cases: Labor Bargaining LaborEmployment FedTracker NewYorkNews