Persuader Rule Fails To Persuade Federal Judge In Texas
Last week a federal court in Texas issued a nationwide ban preventing the Department of Labor (“DOL”) from enforcing its recently proposed Persuader Rule. That rule would have greatly expanded reporting requirements for both employers and their outside consultants, including attorneys, whenever any advice is given on unionizing or collective bargaining. For now, employers and their advisors have a reprieve that allows them to continue reporting as they have been for the last 50-plus years.
Prior to the DOL’s attempted implementation of the new Persuader Rule, employers and their advisors were required to report only “direct persuader activities” under the Labor-Management Reporting and Disclosure Act of 1959 (“LMRDA”), 29 USC § 433. Those direct activities existed if the advisors had direct contact with employees that might persuade them to exercise, or not exercise, their collective-bargaining rights.
This meant that an attorney could freely advise an employer on what to tell its employees about unionizing without having to report such activities to the DOL; only if the attorney actually had face-to-face contact with employees would the reporting requirement be triggered. The law also had a specific “advice exemption” that excluded from reporting any advice given to employers (even if it would be used to persuade employees) – so long as the advisor had no direct contact with employees.
In March 2016, the DOL published the Persuader Rule, which expanded the reporting requirement to include “indirect persuader activities.” 81 Fed. Reg. 15924 (March 24, 2016). Such indirect activities could include an attorney advising management on what it should say to employees about unionizing or what policies should be implemented that might discourage employees from unionizing. Along with the new rule, the DOL revised reporting forms that specifically list the following activities as subject to reporting under the Persuader Rule:
It is unclear what “other” activities might be subject to the Persuader Rule. Either way, in practical terms, if an attorney were to host a seminar for employers that included any discussion regarding an employer’s response to unionizing activities, the attorney would be required to notify the attendees that their names would be publicly reported to the DOL and then report the same. If an attorney sent a letter to its employer-client advising, “You should implement this policy to dissuade your employees from unionizing,” that, too, would have to be reported.
In National Federation of Independent Business v. Perez, Case No. 5:16-cv-00066-C, the U.S. District Court for the Northern District of Texas found that the DOL’s new rule exceeds the DOL’s authority under the LMRDA. On June 27, 2016, that court ruled that the Persuader Rule is “arbitrary and capricious” and violates the First Amendment protections of free speech and association. Several experts testified against the rule in that case, explaining that the reporting requirements would be so burdensome that employers would find it difficult to obtain legal advice.
One lesser-known aspect of the new rule requires attorneys to report fees earned anytime labor-relations advice is given regardless of its purpose; i.e., whether or not persuasive. Several firms that focus on employment law had already announced that, in light of the new rule, they would stop advising employers – not only because of the hassle and expense of reporting, but because disclosing their clients’ identities and the nature of their advice would violate an attorney’s ethical duty of confidentiality and the attorney-client privilege. The federal court noted that the DOL did not provide any studies or cost-benefit analysis to justify such a drastic cutback of their own long-standing “advice exemption.”
At least two other federal lawsuits have been brought challenging the Persuader Rule. One was recently decided by the U.S. District Court for the District of Minnesota in Labnet, Inc. v. United States Department of Labor, Case No. 0:16-CV-00844. In that case, several law firms that advised employers on unionizing challenged the Persuader Rule as violating the plain language of the advice exemption contained in LMRDA.
In determining whether advice qualifies for the exemption, the DOL has historically used a bright line test. Under that test, if the employer were free to accept or reject the advice provided, then it qualified for the exemption. The district court in Minnesota found that the Persuader Rule rejects this bright line test and now requires reporting of any advice that can also be classified as persuader activity. The court concluded that the rule contradicts the plain language of the LMRDA advice exemption and is likely unenforceable.
The third case, Associated Builders and Contractors of Arkansas v. Perez, Case No. 4:16-CV-169, is being litigated in the U.S. District Court for the Eastern District of Arkansas. That matter is still awaiting decision. The U.S. Chamber of Commerce has filed an amicus brief in that case urging the court to invalidate the Persuader Rule because, since 1962 and across administrations of both parties, the DOL has applied a clear and consistent interpretation of the advice exemption.
The two takeaways from these cases are that 1) the Persuader Rule presents real problems for employers and their advisors, and 2) the new rule may not be enforced anywhere in the country – at least not for the time being. It remains to be seen whether the DOL will appeal the ruling of the district court in Texas and ask the appellate court to allow the new rule to be enforced pending the outcome of the appeal. For now, employers and their advisors need not comply with the reporting requirements of the Persuader Rule – but they should be prepared to do so quickly in the event that an appeal ensues and the appellate court disagrees with the lower court’s conclusions.