As we have previously reported, the U.S. Department of Labor on March 24 issued new regulations that adopt a new interpretation of the "persuader" reporting requirements under the Labor Management Reporting and Disclosure Act. The new regulations under the LMRDA, if they withstand already-filed court challenges, will take effect July 1 and will require extensive financial reporting regarding relationships between employers, labor consultants, and attorneys involved in what the DOL views as outside persuader activity, direct or indirect, to persuade employees in the exercise of their rights of union organization.
Both the new regulations and prior DOL interpretation have required employers and their labor consultants who engage in any "persuader activity" to file reports about their use of consultants and lawyers. But under prior longstanding interpretations of the LMRDA, an "advice exemption" limited application of the financial reporting obligations for attorneys and consultants who assisted employers in labor relations activities so long as the activities were "advisory" to the employer (that is, as long as the attorneys and consultants communicated with the employer or each other and not with employees).
The new regulations attempt to narrow the advice exemption, by limiting the exemption to (1) advice that does not have persuasion of employees as its object and (2) representation in collective bargaining, and legal and administrative proceedings. Any services that do not fall into one of these categories will be labeled by the new regulations and the DOL’s interpretation of the LMRDA as indirect or direct "persuader activity" and not "advice." The new interpretation largely swallows the "advice exemption" and will mean that many more entities — employers, attorneys, and consultants — will have an obligation to report financial information on labor relations activity, expansively defined, on at least one of three mandatory DOL forms, one of which — the LM-21 Form (Consultant Receipts and Disbursements Report) — is currently unsuited to the new regulations. The reporting obligations are huge, and failure to comply can result in criminal sanctions.
The DOL has held back on issuing the new regulations for several years, primarily because of concerns – expressed by many, including the American Bar Association – that the proposed rule would intrude upon the attorney-client privilege. Although the final rule has been toned down somewhat, it still requires disclosure of confidential attorney-client matters and communications on the combination of the three required forms – the LM-10 (Employer Report), the LM-20 (Consultant Report), and the LM-21(Consultant Receipts and Disbursements Report). Because these mandatory forms impose significant recordkeeping burdens and seek potentially privileged information, the rule may deter smaller employers from seeking legal advice in labor matters, which may hinder employer effectiveness in union campaigns while increasing the risk that some employers will commit unfair labor practices because they do not have the benefit of legal advice.
As might be expected, the lawsuits seeking to block the Persuader Rule have been rolling in since the final rule was issued. Links to copies of the lawsuits are available here. The final rule as announced took effect on April 25 and was to apply to all persuader arrangements and activity as of July 1. On April 14, the DOL clarified that it will not require compliance with the new rule with respect to any persuader activity or arrangements before July 1. Meanwhile, the DOL’s Office of Labor-Management Standards announced on April 13 that it would not take enforcement action against entities who failed to complete two central sections of its LM-21 Form, apparently because those sections of the form now need to be modified to fit the new regulations. Modification of the LM-21 Form is not on the OLMS’s agenda until September, two months after the July 1 compliance date. Employer representatives had raised this “clash of forms” issue with the DOL during the rulemaking period, but the DOL did nothing to fix the problem in advance. This was apparently because the anticipated changes to the LM-21 form will intrude further on the attorney-client privilege and therefore are expected to set off a firestorm of their own.
Separate from the regulatory and court proceedings, on April 15, Rep. Bradley Byrne (R-Ala.) introduced a resolution to block the final rule. However, it is unlikely that the resolution will have any real effect, even if it passes: President Obama could (and almost surely will) veto the resolution, and the House is unlikely to have enough votes to override it.
The legal and political fight over the “persuader rule” is not likely to subside before the 2016 Presidential election. Employers using any outside consultants or attorneys to handle labor relations matters will need to stay up to date on this subject and in close communication with their legal teams to deal with the new regulation in some manner if the legal challenges fail and the DOL continues on course. We will keep you posted.