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Legal Updates

DOL’s Final “Persuader Rule” On Hold Pending Court Challenge

After nearly five years of stops and starts, the United States Department of Labor’s (“DOL”) new interpretation of the so-called “Persuader Rule” went into effect on April 25, 2016, and was slated to begin requiring new disclosures beginning July 1, 2016. For the first time, employers would be required to report to the DOL their outside law firms’ indirect efforts to plan, direct or coordinate communications to employees regarding union organizing, such as drafting handouts or scripting talking points. Previously, only direct communications between outside counsel and employees had to be reported.

On June 27, 2016, just days before the new reporting obligations were to commence, a Texas federal district court issued a nationwide preliminary injunction preventing the DOL from enforcing its new interpretation of the Persuader Rule (the “Final Rule”). That order, which was sought and won by several pro-business organizations, is only a temporary injunction, and at some point the Final Rule will be subject to further review by the district court, the Fifth Circuit Court of Appeals, or ultimately, the United States Supreme Court. And while the order represents an important victory for business interests, it also creates uncertainty for employers and their counsel about best practices for handling counseling regarding union organizing while the legal challenge plays out.

Background

The Persuader Rule has been part of the Labor Management Reporting And Disclosure Act (the “LMRDA”) since the LMRDA was passed in 1959 in an effort to make labor-management relations more transparent and less corrupt. The LMRDA requires, in part, that both labor unions and employers make certain disclosures concerning their spending on union activities.

The disclosures required by the LMRDA are significant, as are the penalties for failing to make a required disclosure. An employer that contracts with an outside firm for reportable persuader activity must file with the DOL a form identifying the outside firm and all fees paid to the firm. The outside firm is also required to file a similar form. Employers or outside firms that fail to file required reports can be subject to civil or criminal penalties, including fines of up to $10,000 or one year in prison. All disclosure forms filed with the DOL are publicly available in a searchable database on the DOL’s website.

Importantly, the LMRDA exempts “advice” from its reporting requirements, though it fails to precisely define the boundaries of that exemption. In 1962, in the wake of uncertainty concerning the “advice” exemption, the DOL issued a memorandum clarifying its scope. In that memorandum, the DOL explained that only direct persuader activity – where the outside firm communicated directly with employees regarding union organizing – was reportable under the LMRDA. Indirect activity, where the outside firm merely advised the employer with respect to its communications with employees, or even drafted those communications, was not reportable. This interpretation of the “advice” exemption was considered to be settled law for nearly 50 years.

Final Rule

In June 2011, the DOL announced a proposed rule intended to significantly narrow the longstanding “advice” exemption. Under the proposed rule, employers and their outside firms would be required, for the first time, to report indirect persuader activity concerning unionization. The DOL asserted that this change was necessary because employers and firms were “underreporting” their persuader activity, and that additional disclosures were “critical to helping workers make informed decisions” about organizing and bargaining.

The DOL’s announcement was met with widespread criticism and resistance from the business and legal communities. In September 2011, the American Bar Association (which asserts neutrality with respect to labor-management relations) wrote to the DOL expressing “serious concerns” concerning the new rule and the “unjustified and intrusive burden” it would cause to lawyers, law firms, and their clients. The United States Chamber of Commerce described the proposed rule as a “travesty,” arguing that it “will not create a single new job, but will instead create a further drag on job creation.”

Following this firestorm of criticism, the proposed interpretation remained in limbo for more than four years. On March 23, 2016, however, the DOL issued its Final Rule adopting the new interpretation of the Persuader Rule. Despite continuing attacks from business groups and the American Bar Association, the Final Rule went into effect on April 25, 2016.

Legal Challenges To The Final Rule

Following the DOL’s March 23 announcement, three separate lawsuits were filed by business and trade groups challenging the Final Rule. These lawsuits asserted that the Final Rule improperly impinged the attorney-client relationship and privilege, violated employers’ rights to free speech and effective legal counsel, and exceeded the regulatory authority conferred by the LMRDA. The lawsuits specifically sought emergency relief to block the July 1, 2016, implementation date.

On June 27, 2016, a U.S. District Court judge in the Northern District of Texas entered a preliminary injunction enjoining the DOL from implementing the Final Rule. Though its ruling was not a final decision, the court concluded that the challengers had identified several grounds creating a substantial likelihood of successfully overturning the rule. The preliminary injunction will remain in place until the case before the District Court is fully resolved, or until the order is reversed by the Fifth Circuit Court of Appeals or the United States Supreme Court.

Considerations And Guidance For Employers

The District Court’s order enjoining the Final Rule is temporary and will be subject to further legal scrutiny. If and when the order is lifted, it is possible that the DOL will stand by its July 1, 2016, implementation date and seek to require indirect persuader activity undertaken after that date to be retroactively reported.

Below are some practical steps that employers should consider taking:

Review Current Practices

Employers should review whether their current engagements with outside labor counsel may be reportable under the DOL’s Final Rule, if and when the Final Rule ultimately goes into effect. While the LMRDA’s advice exemption will continue to protect legal representation and general advice provided by outside counsel, engagements related to persuader activity concerning union organizing would be reportable. This will likely include such activities as (i) drafting or revising scripts or talking points for communications to employees; (ii) drafting or revising language for pamphlets or other materials that will be distributed to employees; (iii) drafting personnel policies designed to persuade workers against union organizing; (iv) planning or orchestrating a campaign or program to avoid union organizing; and (v) conducting union avoidance training with managers. Experienced counsel can assist in evaluating current practices under the Final Rule.

Evaluate Tolerance For Disclosure

During this period of uncertainty, employers faced with ongoing or anticipated union organizing campaigns will need to evaluate their tolerance for the possibility of future mandated disclosures. Some employers may opt to avoid involving outside counsel in their communications with employees regarding unionization, so as to avoid the need to report if and when the Final Rule takes effect. Other employers may decide that the value of the input provided by experienced labor counsel outweighs the risk of future reports. Experienced counsel can help employers evaluate the many factors that will inform their decisions as to outside assistance with persuader activity.

Stay Tuned For Updates

Unfortunately, there is no definite date or timeline by which the uncertainty regarding persuader activity will be resolved. Nearly five years elapsed between the DOL’s announcement of the proposed change and its attempted implementation of the Final Rule, and it could be several more years until ongoing legal challenges are completely resolved. In the meantime, employers should be on the lookout for future updates concerning the Final Rule.