The Rising Pressure Against the Labor Department’s “Persuader Rule”

The DOL’s new rule is currently blocked while the DOL, employers, attorneys representing management, and labor consultants remain in a state of limbo.

This article was published in the July 12, 2016, issue of Law360.

This past March, the U.S. Department of Labor issued a final rule changing its longstanding interpretation of the reporting obligations of employers and their attorneys and labor consultants regarding persuader activities under the Labor-Management Reporting and Disclosure Act of 1959 (the persuader rule). The DOL’s previous interpretation of the persuader rule set a bright line between reporting activities through which the agent had direct contact with employees versus those activities through which the employer’s agent did not.

However, the new rule expands reporting requirements to include the all “persuader activity,” even if there is no direct contact with employees. The rule was effective April 25, 2016, and designed to require reporting of only those arrangements and agreements after July 1, 2016. What appeared to be a step forward for transparency appeared to be a giant leap back for client confidentiality and the right to counsel.[1] However, before the all­ important July 1 cutoff, an association of employers, attorneys and groups across the country engaged in their own version of the Texas two-step with the DOL that recently resulted in the issuance of a nationwide preliminary injunction against the implementation of the rule by the Northern District of Texas on June 27, 2016.

As a result, the DOL’s new rule is currently blocked while the DOL, employers, attorneys representing management, and labor consultants remain in a state of limbo until additional action is taken regarding the rule.[2]

Below is a look at the origin of the persuader rule, the effect of the DOL’s new rule, the recent decisions addressing it, and what to look for moving ahead.

Background

The Persuader Rule traces its roots to the Taft-Hartley Labor Relations Management Act of 1947 and arises from the text of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA). Before the passage of the Taft-Hartley Act in 1947, labor law only restricted certain unfair labor practices by employers. The Taft-Hartley Act changed this by amending the National Labor Relations Act to prohibit certain actions by labor unions as unfair practices, as well as expressly allowing states to pass right-to-work legislation. [3]

The new microscope placed on labor organizations by the Taft-Hartley Act suggested a pattern of misconduct and unfair labor practices.[4] This led to a growing faction of Congress determining additional action was needed to combat improper activities by labor unions.[5] It also led to employers hiring labor consultants to dissuade employees during union elections. As a result, apart from monitoring improper union activity, a secondary concern of Congress at the time revolved around employers’ retention of labor consultants for persuader activity.

Against this backdrop of increased congressional scrutiny over the labor movement, a bipartisan effort led to the passing of the LMDRA in 1959. The purpose of the LMRDA – then and now – is to protect the American worker by requiring greater transparency from labor unions and employers. To this end, the LMRDA imposes a set of requirements on both unions and employers, providing for:

• a bill of rights for employees who are members of labor organizations;
• the right of members of labor unions to receive copies of applicable collective bargaining agreements; and
• reporting requirements for both labor unions and employers.

The persuader rule is embedded in Section 203 of the LMRDA, which requires employers to report “any agreement or arrangement with a labor relations consultant or other independent contractor” under which the outside labor consultant “undertakes activities where an object thereof, directly or indirectly, is to persuade employees to exercise or not to exercise .. . the right to organize and bargain collectively .. .” Subsection 203(b) imposes similar reporting requirements on outside labor consult ants .

Straightforward enough. However, the line is blurred by subsection(c). Known as the persuader rule’s “advice exemption,” section 203(c) broadly provides that nothing in section 203 “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[.]”

In 1962, three years after the passage of the LMRDA, a memorandum from then-Solicitor General Charles Donahue interpreted the advice exemption broadly, explaining that the advice exemption served to exclude from the reporting requirement any material provided to an employer that the employer could then “accept or reject.” This formed the backbone of the DOL’s longstanding interpretation that an attorney or consultant hired by an employer to provide advice regarding union management and organizing would be exempt from the LMDRA reporting requirements as long as he or she did not directly engage with employees regarding persuader activity. This interpretation was reiterated more recently in 1989 in an internal DOL memorandum which stated:

… a usual indication that an employer-consultant agreement is exempt is the fact that the consultant has no direct contact with employees and limits his activity to providing to the employer or his supervisors advice or materials for use in persuading employees which the employer has the right to accept or reject.

This particular interpretation of the advice exception to the persuader rule has been followed by the DOL since 1989. Until now.

The 2016 Final Rule

On March 23, 2016, the DOL issued its final rule significantly narrowing the advice exemption. The DOL explains that in its view, the final rule revises enforcement of the advice exemption to give effect to the original intent of the LMDRA, which was to require the reporting of activities undertaken either directly or indirectly with an object to persuade employees about the exercise of their rights to union representation and collective bargaining.

Under the final rule, activities traditionally not reportable under the advice exemption for the last half-century would need to be reported. This includes legal advice from attorneys such as drafting, editing or choosing materials for employers to distribute to employees during unionization campaigns; conducting seminars for employers that discuss persuasion strategies; scripting speeches or talking points by supervisors and managers; and potentially even developing personnel policies in the context of organized activity or with persuasive intent.

The DOL and proponents of the final rule argue that it results in greater transparency which will only benefit workers. They contend this additional information gives workers more information about the source of campaign material, which contributes to making a more informed choice in union elections. Opponents of the new rule argue that it goes against the intent of Congress when it crafted the advice exemption, and would undermine the importance of the confidentiality of the attorney-client relationship as well as employers’ fundamental right to counsel. Opponents further argue the final rule is overbroad such that it requires disclosure of confidential information without a reasonable nexus to persuader activities.[6]

The final rule became effective April 25, 2016. However, the all-important date marked on employers, attorneys and labor consultants’ calendars was July 1, 2016. This is because the final rule is applicable only to arrangements and agreements as well as payments made on or after July 1, 2016.

The Injunction Against the New Rule

Following the issuance of the final rule, separate challenges and requests for injunctions against the implementation of the rule were made in the U.S. District Courts for the District of Minnesota, the Northern District of Texas, and the Eastern District of Arkansas.

The first to address the viability of the revised persuader rule was the Honorable Patrick J. Schiltz of the U.S. District Court in Minnesota.[7] Judge Schiltz’s decision on the permanent injunction application noted that the plaintiffs, an association of law firms and groups representing management in labor and employment matters, were likely to “succeed in their claim that portions of the new rule conflict with the LMDRA.”

The decision explains that the persuader rule “is subject to a crucial qualification” and that qualification is that “the mere giving of ‘advice’ does not trigger an obligation to report.”[8] According to Judge Schiltz, “the root of the DOL’s problem is in its insistence that persuader activity and advice are mutually exclusive categories … [As a result, the] DOL ends up struggling mightily to define as nonadvice activity that any reasonable person would define as advice.” Nevertheless, Judge Schiltz declined to issue an injunction because he found the plaintiffs did not make a showing they would suffer irreparable harm without the issuance of the injunction.

The decision coming from up north in Minnesota was merely a sign of things to come from down south. Days later, the Honorable Sam R. Cummings presiding over the U.S. District Court for the Northern District of Texas issued a nationwide injunction against the implementation of the DOL’s final rule.[9] Judge Cummings’ decision makes no attempt to hide its opposition to the DOL’s new interpretation, explaining:

[The] DOL’s new rule is not merely fuzzy around the edges. Rather the new rule is defective to its core because it entirely eliminates the LMRDA’s advice exemption. In whatever manner the DOL defines “advice,” it must do so consistent with the statute and therefore must actually exempt advice, including advice that has an object to persuade. The new rule not only fails to do that, it does the exact opposite: it nullifies the exemption for advice that relates to persuasion.

After finding that the new rule threatens irreparable harm by threatening the plaintiffs, their members and other employers access to legal advice, Judge Cummings issued a preliminary injunction against the rule. The most important finding in the decision, however, is its explanation that the injunction is nationwide in scope.

What to Watch For

As a result of Judge Cummings’ Perez decision, the revisions to the persuader rule have not gone into effect. It is presumed – but unknown at this time whether – the DOL plans to appeal the Perez decision. Another point of uncertainty is the applicability of the rule to agreements reached after July 1, 2016, if the DOL appeals the injunction and is ultimately successful. It is certainly possible that a court of appeals decision overturning the injunction will effectively restore the persuader rule thereby requiring reporting of new agreements entered into after the rule’s July 1 reporting cutoff date. As a result, employers faced with union organizing campaigns should continue to proceed with caution regarding actions taken to combat union elections.

Another case to look out for is the action making its way through the District Court for the Eastern District of Arkansas: Associated Builders and Contractors of Arkansas et al. v. Perez et al., case number 4: 16-cv-00169.

The mounting pressure against the implementation of the final rule is not just limited to courthouse challenges. The House Committee on Education and the Workforce recently joined the fray, approving a resolution pursuant to its power under the Congressional Review Act to block the implementation of the new rule.

[1] The DOL would argue – and perhaps correctly – that this was a mere small step back for client confidentiality while providing a large leap forward for transparency. Either way, credit to Neil Armstrong for his quote back on the 20th of July, 1969 that to this day helps turn typically mundane legal articles into more digestible ones.

[2] Welcome to the state of the American legal system in 2016.

[3] Right-to-work laws vary from state-to-state. The general commonality is that right-to-work laws prevent “union security” clauses in collective bargaining agreements which require employees to join a labor organization as a condition of employment.

[ 4] The NLRB reports that from 1935 to 1947, unions won over 80 percent of elections. Following the greater transparency required by the Taft-Hartley Act, the number of union victories in NLRB-conducted elections declined to approximately 70 percent.

[5] See Interim Report of the Select Committee on Improper Activities in the Labor or Management Field, S. Rep. No. 85-1417 (1957).

[6] Opponents to the rule include the American Bar Association, which initially sent a letter expressing its objection to the adoption of the final rule back in 2011.

[7] The case is Labnet Inc., et al. v. U.S. Department of Labor, et al., case no. 0: 16-cv00844, in the United States District Court for the District of Minnesota.

[8] The decision expresses concern with the fact that the DOL’s interpretation of§ 203(b) requires “consultants to include in their annual reports not only information about employers for whom they engaged in persuader activity but also information about all other employers for whom they provided advice or services concerning labor relations, even if that advice and those services did not involve persuader activity.”

[9] The case is National Federation of Independent Business et al. v. Perez et al., case numbers: 16-cv-00066, in the U.S. District Court for the Northern District of Texas.