On June 27, a federal court in Texas enjoined the United States Department of Labor (“DOL”) from implementing its new interpretation of the “Persuader Rule.” In a sweeping 86-page rebuff to the DOL, the court opined that the DOL’s new interpretation of the “Advice Exemption in Section 203(c) of the Labor-Management Reporting and Disclosure Act” (“New Rule”) is “defective to its core” and thus preliminarily enjoined implementation of the New Rule nationwide. This decision is critically important to employers because it preserves their right to confidential legal representation, without government interference. Prior to this decision, the DOL’s New Rule and its significant reporting obligations were set to take effect on July 1, 2016.

By way of background, the Labor-Management Reporting and Disclosure Act of 1959 (“LMRDA” or “the Act”) has long contained provisions requiring persons engaged in persuading employees concerning the exercise of their rights to organize and engage in collective bargaining pursuant to an agreement or arrangement with the employees’ employer to report the details of those agreements and arrangements. These provisions are known as the Persuader Rule.

Traditionally, a person engaged in reportable persuader activity only if he or she had direct contact with employees. The work of labor consultants, including law firms, who had no direct contact with employees, but assisted employers in advising them on how to run their union avoidance campaigns, was considered exempt from reporting under the “advice exemption” found in Section 203(c) of the LMRDA.

On March 23, 2016, DOL released its revised interpretation of Section 203(c)’s advice exemption. The DOL’s New Rule classifies certain activities engaged in by law firms and employer associations as “indirect persuader activity” subject to reporting and public disclosure.

In its June 27 decision, the Texas district court concluded that the New Rule would irreparably harm the lawyer-client relationship by destroying client confidences. Senior Judge Sam R. Cummings issued a nationwide preliminary injunction, finding that the New Rule was likely to violate the plain language of the statute, which protects “advice,” including “persuasive” advice, from disclosure. The court thus rebuffed the DOL’s rejection of the bright-line rule in place for over 50 years – and first promoted by President John F. Kennedy’s Solicitor of Labor – which predicates the reporting obligation on whether the attorney has direct contact with employees. The court held that “advice” and “persuasive advice” overlap and are not mutually exclusive concepts subject to vague balancing tests that depend upon a regulator’s conclusion of whether communications might have been made with an intent to persuade employees concerning their option to form a union or to engage in collective bargaining.

• The court also held that the New Rule likely is arbitrary, capricious and an abuse of discretion in that it unreasonably conflicts with state ethics rules governing the practice of law.
• The court further held that the New Rule likely violates employers’ free speech and association rights protected by the First Amendment, as a content-based restriction that seeks to examine the “advice” message given to employers via a vague test with potential criminal penalties.
• The court also found that the New Rule likely violates federal law in that the DOL grossly underestimated the compliance costs to small businesses, which could amount to $60 billion over 10 years, and failed to perform a benefit-cost analysis, which federal law requires before so costly a regulation may be imposed upon the employer community.

A federal court in Minnesota also found that the New Rule likely conflicts with the LMRDA, but did not issue an injunction, concluding that irreparable harm was not present. The Texas court, in contrast, considered the testimony of eight witnesses, including that of Dennis Duffy, a BakerHostetler Employment attorney in Houston, Texas, whom the court recognized as a nationwide expert in legal ethics and the rules of professional conduct. The court, citing more than five pages of Mr. Duffy’s testimony, concluded that irreparable harm was present in that the disclosure requirements would violate lawyers’ duty of confidentiality and loyalty to clients and detrimentally impact employers’ right to counsel.

Bottom Line

The court’s preliminary injunction offers a welcome respite for employers faced with new and potentially burdensome interference with their right to counsel. Employers should continue to closely monitor the New Rule and be prepared to take protective steps in the event the preliminary injunction is overturned. The New Rule also faces legislative challenges. Republicans in the House of Representatives introduced legislation invoking the authority of the Congressional Review Act that, if passed, would keep the Persuader Rule from being enforced on July 1, 2016, even absent the injunction issued on June 27.19 On May 18, the House Education and Workforce Committee approved the legislation, moving it to a vote of the full House.

Article by M. Scott McIntyre of BakerHostetler