As we explained in our client alert and blog posting on June 30, 2016, a Texas federal court on June 27 enjoined the United States Department of Labor (DOL) from implementing its new interpretation of the “Persuader Rule.” In a sweeping 86-page rebuff to DOL, the court opined that the DOL’s new interpretation of the “Advice Exemption in Section 203(c) of the Labor-Management Reporting and Disclosure Act” (“New Rule” for short) is “defective to its core,” and thus it preliminarily enjoined implementation of the New Rule nationwide.
On Nov. 16, this same federal court converted its June ruling to a permanent nationwide injunction that prevents implementation of the New Rule. Senior Judge Sam R. Cummings also granted the motion for summary judgment by Texas, nine other states and various business groups. This decision is critically important to employers because it preserves their right to confidential legal representation without government interference. Prior to this decision, the DOL’s New Rule (totaling 127 pages) and its significant reporting obligations were set to take effect on July 1, 2016.
By way of background, the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA, or the Act) has long contained provisions requiring persons engaged in persuading employees concerning the exercise of their rights to organize and engage in collective bargaining pursuant to an agreement or arrangement with the employees’ employer to report the details of those agreements and arrangements. These provisions are known as the “Persuader Rule.” Traditionally, a person engaged in reportable persuader activity only if he or she had direct contact with employees. The work of labor consultants, including law firms, that had no direct contact with employees but assisted employers in advising them on how to run their union avoidance campaigns was considered exempt from reporting under the “advice exemption” found in Section 203(c) of the LMRDA.
On March 23, 2016, DOL released its revised interpretation of Section 203(c)’s “advice exemption.” The DOL’s New Rule classified certain activities engaged in by law firms and employer associations as “indirect persuader activity” subject to reporting and public disclosure.
The Texas District Court concluded that the New Rule would irreparably harm the lawyer-client relationship by destroying client confidences. The court found that the New Rule was likely to violate the plain language of the statute, which protects “advice,” including “persuasive” advice, from disclosure. The court thus rebuffed the DOL’s rejection of the bright-line rule in place for over 50 years – and first promoted by President John F. Kennedy’s solicitor of labor – which predicates the reporting obligation on whether the attorney has direct contact with employees. The court held that “advice” and “persuasive advice” overlap and are not mutually exclusive concepts, subject to vague balancing tests that depend upon a regulator’s conclusion of whether communications might have been made with an intent to persuade employees concerning their option to form a union or to engage in collective bargaining.
The court also held the New Rule likely to be arbitrary, capricious and an abuse of discretion in that it unreasonably conflicts with state ethics rules governing the practice of law.
The court further held that New Rule likely violates employers’ free speech and association rights protected by the First Amendment as a content-based restriction that seeks to examine the “advice” message given to employers via a vague test with potential criminal penalties.
The court also found that the New Rule likely violated federal law in that the DOL grossly underestimated the compliance costs to small businesses, which could amount to $60 billion over 10 years, and thus that the DOL had failed to perform a benefit/cost analysis, which is required by federal law before so costly a regulation may be imposed upon the employer community.
A federal court in Minnesota previously found that the Rule was likely in conflict with the LMRDA but did not issue an injunction, concluding that irreparable harm was not present. The Texas court, in contrast, considered the testimony of eight witnesses, including that of Dennis Duffy, a BakerHostetler labor and employment attorney in Houston, Texas, whom the court recognized as a nationwide expert in legal ethics and the rules of professional conduct. The court, citing more than five pages of Mr. Duffy’s testimony, concluded that irreparable harm was present in that the disclosure requirements would violate the lawyers’ duty of confidentiality and loyalty to clients and detrimentally impact employers’ right to counsel.
The state’s briefing on summary judgment successfully argued that the DOL’s New Rule broke with five decades of DOL precedent protecting the core right to seek and receive confidential, candid legal advice from a loyal counselor. In the words of the Intervenor States’ Brief in Support of Summary Judgment, precluding an employer from the ability to acquire confidential advice from her attorney – a candid counselor loyal to her – is an unreasonable restraint on freedom. The states, in their defense of the most basic right of employers to counsel, persuasively relied upon the words of the Supreme Court more than 70 years ago: “[I]t is from petty tyrannies that large ones take root and grow. This fact can be no more plain than when they are imposed on the most basic rights of all.” Thomas v. Collins, 323 U.S. 516, 543 (1945). While the DOL has pursued an interlocutory appeal of the court’s June 27 injunction, the nationwide injunction protects employers’ right to counsel. Employer groups remain optimistic that the new administration will agree with Judge Cummings’ view that the New Rule is defective to its core.