The U.S. Department of Labor’s narrow interpretation of the “advice exemption” of the “Persuader Rule” appears to be no more. Yesterday a federal judge in Lubbock, Texas, issued a permanent injunction prohibiting enforcement of the Rule. The DOL’s interpretation of the Labor Management Reporting and Disclosure Act would have required employers, labor consultants, and attorneys retained by employers to report detailed financial and other information with respect to broadly-defined labor “persuader activity.” Yesterday’s order, issued by Judge Sam R. Cummings in National Federation of Independent Business v. Perez, follows one that he issued on June 27, granting a preliminary injunction. The preliminary injunction order is on appeal to the U.S. Court of Appeals for the Fifth Circuit.

With the election of Donald Trump as President, it is not clear how aggressively the DOL will continue pursuing its appeal options.

Two other lawsuits challenging the rule are pending in federal district courts in Arkansas and Minnesota. Although the Minnesota court declined to issue an injunction, the Arkansas court decided not to rule on a preliminary injunction request after the Texas court enjoined the rule.

Background

The new DOL interpretation of the advice exemption in the Persuader Rule was intended to force reporting by employers, as well as by their third party consultants and lawyers, of information about activity conducted by the third party consultants and attorneys that the DOL deemed "indirectly" persuaded employees about their labor organizing and collective bargaining rights. Although reporting of so-called persuader activity has always been required by the LMRDA, that statute has an “advice exemption” that long has been interpreted by the DOL to exempt “advice” to and through employers that might have a “persuading” object, as long as the consultant or attorney does not communicate with employees directly and is providing “advice” to the employer that the employer is free to accept or reject.

Under the new interpretation of the advice exemption in the Persuader Rule that has now been struck down, the “advice exemption” largely would have been eliminated, with the upshot being that a broader range of consultant and attorney activity on behalf of employers would need to be reported to the DOL and made publicly available. Employers and their outside labor relations advisors and attorneys essentially would have been required to report any employer-paid third party activity that had “an objective” of persuading employees regarding union organizing and collective bargaining.

In his preliminary injunction order issued in June, which he adopted in his permanent injunction order issued yesterday, Judge Cummings found that the new interpretation in the Persuader Rule was “defective to its core,” and found that the plaintiffs were likely to succeed on the following claims:

  1. That the new rule was arbitrary, capricious, and an abuse of discretion, because among other things, generally, the DOL had not shown any genuine need for a new rule, and the new rule intruded on the attorney-client privilege and undermined the confidentiality that is critical to attorney-client relationships.
  2. That the new rule violated free speech and association rights guaranteed by the First Amendment to the U.S. Constitution because it imposed content-based burdens on speech with no showing of a compelling federal interest. The judge took the DOL to task for its assertion that the rule was necessary for employees to be well informed in representation elections. Under current election scheduling rules, elections typically occur within 30 days of the filing of a petition, long before the deadline for disclosures to be made on DOL forms under the Persuader Rule.
  3. That the new rule was unconstitutionally vague in violation of the due process clause of the Fifth Amendment to the U.S. Constitution, generally because the rule failed to provide any reasonable clarity as to what activity had to be reported and what was exempted “advice” under the LMRDA.
  4. That the new Persuader Rule violated the Regulatory Flexibility Act because the DOL had improperly calculated the estimated costs of the regulation and failed to make an appropriate cost-benefit analysis.

As we reported in June, the relief from this burdensome, costly regulation that would have intruded on the time-honored and nearly sacred attorney-client privilege, is a very positive development for employers and their attorney advisers. In a global economy, it is also good for the public, including employees who are now in competition with automation and workers from other countries.