Court Halts Labor Department’s New Persuader Rule

  • June 27, 2016

The U.S. District Court for the Northern District of Texas, Lubbock Division, has issued a nationwide preliminary injunction against the U.S. Department of Labor’s “persuader” rule promulgated under the Labor-Management Reporting and Disclosure Act. National Federation of Independent Business, et al. v. Perez, Civil Action No. 5:16-cv-00066-C (N.D. Tex. June 27, 2016). Unless the ruling is overturned by the U.S. Court of Appeals for the Fifth Circuit or the U.S. Supreme Court, the new rule will not go into effect on July 1, 2016.

LMRDA Section 203 (c) contains what is known as the “advice exemption” from the statute’s reporting requirements. That section provides as follows:

Nothing in this section shall be construed to require any employer or other person to file a report covering the services of such person by reason of his giving or agreeing to give advice to such employer or representing or agreeing to represent such employer before any court, administrative agency, or tribunal of arbitration or engaging or agreeing to engage in collective bargaining on behalf of such employer with respect to wages, hours, or other terms or conditions of employment or the negotiation of an agreement or any question arising thereunder.

Therefore, under this provision, when a consultant, including an attorney, provides only advice to the employer, no reporting to the Department of Labor is required.

Section 204 of the LMRDA exempts attorney-client communications from the reach of the LMRDA. It provides:

Nothing contained in [the LMRDA] shall be construed to require an attorney who is a member in good standing of the bar of any state, to include in any report required to be filed pursuant to the provisions of this Act any information which was lawfully communicated to such attorney by any of his clients in the course of a legitimate attorney-client relationship.

On March 24, 2016, the United States Department of Labor published its final rule relating to “persuader” activity under the Labor-Management Reporting and Disclosure Act. Under the DOL’s new interpretation, employers/clients as well as consultants/attorneys would be required to report to the DOL all arrangements in which an “object” (directly or indirectly) of the services provided by the consultant/attorney is to persuade employees about the manner of exercising the employees’ “right to organize and bargain collectively through representatives of their own choosing” under federal labor law. (The final rule took effect on April 25, 2016, but is applicable only to arrangements and agreements (and payments associated therewith) entered into on or after July 1, 2016.)

The new rule would likely make it more difficult for employers to communicate effectively facts and opinions on labor relations matters to employees — a right provided to employers by the National Labor Relations Act — without incurring a reporting obligation. It also likely would interfere with an employer’s right to effective representation by legal counsel, particularly in obtaining legal advice and preserving the confidentiality of attorney-client communications. This advice often is necessary when employers speak to their employees to avoid unlawful or objectionable conduct under the NLRA.

The hearing on the plaintiffs’ request for a preliminary injunction was held on June 20, 2016. Testimony was taken from a number of expert witnesses about the National Labor Relations Act and labor attorney involvement in union organizing campaigns on both legal and tactical issues. In his ruling, United States District Court Judge Sam R. Cummings found that:

(1) The plaintiffs showed a substantial likelihood of success on the merits because:

  • the new rule exceeds the Department of Labor’s authority under the LMRDA “by effectively eliminating the statute’s advice exemption contrary to the plain text of section 203 (c) of the law”;
  • the interpretation is arbitrary, capricious, and an abuse of discretion;
  • the interpretation violates free speech and association rights protected by the First Amendment because it imposes content-based burdens on speech;
  • the interpretation is unconstitutionally vague in violation of the due process clause of the Fifth Amendment; and
  • the interpretation violates the Regulatory Flexibility Act because the Department of Labor, in certifying that the new interpretation would not have a significant economic impact on a substantial number of small entities, understated the economic impact of the rule.

(2) The court also found that the plaintiffs have shown a substantial threat of irreparable harm in the absence of injunctive relief because the new rule:

  • reduces access to full, complete, unconflicted legal advice and representation relating to unionization campaigns;
  • reduces access to training, seminar, information, and other advice relating to unionization campaigns; and
  • burdens and chills First Amendment rights, including the right to express opinions on union organizing and to hire and consult with attorneys.

The court determined that by requiring the disclosure of advice, including legal advice from attorneys to clients, the rule conflicts with attorney ethical rules.

The court also found that the balance of hardship weighs in the plaintiffs’ favor. The court found that the threatened injury to plaintiffs is substantial, noting the risk of deprivation of counsel and burden to constitutional rights. The court weighed this against what it viewed as the Department of Labor’s suffering no harm from delayed implementation.

Finally, the court found that the issuance of the preliminary injunction will not disserve the public interest because it would ensure the plaintiffs and other employers will continue to have access to necessary legal counsel, protect confidential relationships, and protect constitutional rights.

While this decision is good news, we will continue to watch this case and the two other lawsuits (in Minnesota and Arkansas) challenging the new rule and be prepared should the decision be overturned.

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