As we informed you on June 22, 2016, the Department of Labor (DOL) “persuader rule” was to go into effect on July 1, 2016. However, on June 27, the U.S. District Court for the Northern District of Texas granted a nationwide preliminary injunction on the rule. The so-called persuader rule required employers and law firms to file a Form LM-20 detailing expenditures on common legal services, such as supervisor training, drafting union avoidance materials, and providing other labor advice.
In granting the injunction, the court noted that the American Bar Association opposed the new persuader rule because it would require disclosure of confidential client information, such as the existence of the client-lawyer relationship and the identity of the client; the general nature of the legal representation; and a description of the legal tasks performed, including indirect persuasion services. The court ruled that the plaintiffs had shown a likelihood of success on their claim that the rule exceeds DOL’s authority by effectively eliminating the Labor-Management Reporting and Disclosure Act’s (LMRDA’s) “advice exemption” (National Federation of Independent Business v. Perez, 5:16-cv-00066-C).
The Texas court ruled that the plaintiffs also showed that the persuader rule violates the First Amendment rights to free speech and free association, and that it was impermissibly vague in violation of the Fifth Amendment right to due process. The court also held that the DOL had not calculated the cost to small businesses as the Regulatory Flexibility Act requires. For now, the July 1 deadline is on hold because of the preliminary injunction.
What does this mean for you?
That said, amended engagement agreements for legal services are still advised to take advantage of the exception to the potential reporting requirement. The deputy director of the Office of Labor-Management Standards at the DOL, recently said, “Services and payments made pursuant to a multi-year agreement, even if they occur after July 1, are not required to be reported on the new Form LM-20, so long as the agreement was signed prior to July 1.” Although the grandfathering of engagement agreements prior to July 1 was written into the new regulations, it wasn’t until more recently that the DOL provided clarity on the reporting exception leading law firms to amend their client engagement agreements.
If the preliminary injunction becomes permanent and survives any appeals, the new persuader rule doesn’t take effect and indirect persuader activity won’t be reportable, for now.
However, if the preliminary injunction doesn’t stand, the grandfather provision provides an exception to the persuader rule reporting requirement. Accordingly, we continue to advise clients to amend their engagement agreements before July 1, as insurance.