Calling the Department of Labor’s new interpretation of its LMRDA Persuader Rule “defective to its core,” the District Court for the Northern District of Texas issued a nationwide injunction on June 27, 2016, against the Final Rule published on March 24, 2016. This ruling in National Federation of Independent Business et al. v. Perez, 16-cv-00066 (N.D. Tex, June 27, 2016), comes just days before the July 1, 2016 date on which the New Rule’s most problematic reporting requirements would have become fully effective. It comes also on the heels of last week’s decision by the District Court for Minnesota in Labnet Inc. et al. v. U.S. Department of Labor et al., 16-cv-00844 (D. Minn. June 22, 2016), wherein the court held far more narrowly that the rule might be invalid, but rejected most of the employer’s arguments and declined to enjoin the rule.

Previous Labor Relations Today posts have explained the reporting requirements of the Labor Management Reporting and Disclosure Act of 1959 (LMRDA), and the DOL’s current efforts to expand significantly their scope to cover labor and employment attorneys. Briefly summarized, the law requires financial reporting and disclosure by employers and their consultants of any agreement or arrangement by which the consultant will undertake activities, directly or indirectly, to persuade employees whether or not to exercise their right to organize and bargain collectively.  There has always been a statutory “Advice Exemption” in Section 203(c) of the Act, which exempts from reporting “the services of such [consultant] by reason of his giving or agreeing to give advice to such employer….” Section 204 also exempts certain attorney-client communications from reporting, which is defined as, “information which was lawfully communicated to [an]…attorney by any of his clients in the course of a legitimate attorney-client relationship.”

The DOL’s New Rule would narrow the interpretation of “advice” so as to ensnare, for the first time, any consultants or advisers who provide any sort of advice that might have some persuasive impact on the employees – regardless of whether that consultant or adviser ever has any direct contact with the employees at all, and regardless of whether the employer is ultimately free to make its own decisions to accept or reject the advice. Despite some reference suggesting that the New Rule required no information from attorneys that would violate attorney-client privilege, it would require attorneys to report on the nature of their engagement and fees paid if they did any work for the employer in connection with the persuasion of employees – such as training managers and supervisors how to respond lawfully to organizing efforts, providing lawful draft communications, or development of personnel policies, among others.

In a sweeping decision, the District Court for the Northern District of Texas determined that the Plaintiffs challenging the New Rule have shown a “substantial likelihood of success on the merits” on numerous claims:

  • The New Rule “exceeds DOL’s authority under the LMRDA by effectively eliminating the statute’s Advice Exemption contrary to the plain text of Section 203(c),” a finding consistent with last week’s decision of the District Court for Minnesota;
  • The New Rule is “arbitrary, capricious, and an abuse of discretion,” because the in hundreds of pages of rulemaking documentation the DOL never explains why it chose to abandon its longstanding interpretation of the “Advice Exemption” now;
  • The New Rule’s reporting requirements unreasonably conflict with state rules governing the practice of law, and violate the attorney-client privilege;
  • The New Rule “violates free speech and association rights protected by the First Amendment”;
  • The New Rule is unconstitutionally vague in violation of the due process clause of the Fifth Amendment”;
  • The New Rule violates the Regulatory Flexibility Act as DOL likely understates its annual economic impact by billions of dollars according to former DOL Chief Economist, Diana Furchtgott-Roth.

The court further ruled that the New Rule will cause irreparable harm to the Plaintiffs by “[r]educe[ing] access to full, complete, un-conflicted legal advice and representation,” and “burden[ing] and chill[ing] First Amendment rights…..”  On balance, the court held the DOL will suffer no harm from the “delay[ed] implementation of an invalid rule.”  Accordingly, the court granted the injunction:

The United States of America, its departments, agencies, officers, agents and employees, including Thomas E. Perez, Secretary of the United States Department of Labor, and Michael J. Hayes, Director of the Office of Labor-Management Standards, are hereby enjoined on a national basis from implementing any and all aspects of the United States Department of Labor’s Persuader Advice Exemption Rule (“Advice Exemption Interpretation”), as published in 81 Fed. Reg. 15,924, et seq….. The scope of this injunction is nationwide.

Insofar as the Minnesota court decision was far narrower, and rejected many of the arguments adopted by the Texas court here, and with further litigation and appeals likely, it would be prudent for employers to continue to prepare for the possibility of enforcement at some future date. Because the New Rule would apply only to agreements or arrangements entered into after July 1, 2016, employers should consider entering into agreements for arguably covered services prior to that time.