On June 27, 2016, the District Court for the Northern District of Texas issued a nationwide injunction enjoining the Department of Labor’s (DOL) Persuader Rule, 81 Fed. Reg. 15924.1 In reaching this conclusion, the court explained, “the [Persuader Rule] is defective to its core because it entirely eliminates the LMRDA’s advice exemption.”
The injunction comes just before July 1, 2016, the date the Persuader Rule had been scheduled to come into effect. The Texas court’s decision is a significant victory for employers and consultants who provide labor and employment law advice and services. At least for now, the injunction will relieve employers that enter into agreements with third-party advisors who provide labor and employment law advice and services, and the advisors themselves, from incurring reporting obligations under the Labor-Management Reporting and Disclosure Act (LMRDA) as a result of such agreements or arrangements.
The Persuader Rule
As explained in Littler’s March 24, 2016 Insight,2 the Persuader Rule imposes upon employers and their advisors (including lawyers and consultants), for the first time, the obligation to file public reports with the DOL disclosing any advice that “indirectly persuades” employees regarding union organizing or collective bargaining. Prior to the Persuader Rule, such reports were only required when an advisor made direct contact with the employer’s employees, regardless of the persuasive purpose of the advice. The published Persuader Rule indicated it would become effective on April 25, 2016, and would apply only to “persuader” arrangements and agreements, as well as to payments (including reimbursed expenses) made on or after July 1, 2016.
Shortly after the Persuader Rule’s publication, several associations and other entities filed three lawsuits against the DOL, seeking to enjoin the rule.3
The Texas District Court’s Ruling
The judge presiding over the Texas lawsuit considered the following four factors in deciding whether to enjoin the Persuader Rule: (1) the likelihood of the plaintiffs’ success on the merits on the issue of the Rule’s unlawfulness; (2) the threat of irreparable harm to the plaintiffs if the injunction is not granted; (3) the balance between that harm and the injury that granting the injunction will inflict on the other parties; and (4) the public interest.
The judge ruled that the plaintiffs established a substantial likelihood of success on their claims attacking the legality of the Persuader Rule. He found six separate grounds on which the Rule could be deemed unlawful. Specifically, the judge determined that the plaintiffs are likely to succeed on the following arguments:
- The Rule exceeds the DOL’s authority under the LMRDA by effectively eliminating the advice exception and is therefore “defective to its core.”
- The Rule is arbitrary, capricious, and constitutes an abuse of discretion. The court reached this conclusion on the basis that the DOL had reversed its longstanding position of over 50 years without conducting any studies or independent analysis that would support the DOL’s reversal of its interpretation of the LMRDA.
- The Rule’s reporting requirements are inconsistent with and undermine the attorney-client privilege and the confidentiality of the attorney-client relationship.
- The Rule violates free speech and association rights protected by the First Amendment to the U.S. Constitution.
- The Rule is void for vagueness and therefore, in violation of the due process clause of the Fifth Amendment to the U.S. Constitution.
- The Rule violates the Regulatory Flexibility Act.
The judge ruled that the plaintiffs established that the Persuader Rule will cause irreparable harm because, among other things, it reduces employer access to “full, complete, un-conflicted legal advice and representation” and burdens First Amendment rights. The judge further concluded the DOL will suffer no harm from the “delay[ed] implementation of an invalid rule.”4 The judge found that a preliminary injunction serves the public interest because it will ensure that employers “will continue to have access to necessary legal counsel,” and an injunction will “protect confidential relationships and protect constitutional rights.” In light of these conclusions, the judge granted the preliminary injunction.
Impact of Decision
Significantly, the injunction spares employers and consultants who provide employment-related advice and services to employers from incurring reporting obligations based on agreements or arrangements to provide “indirect persuader activity.” The injunction further prevents the DOL from enforcing the Persuader Rule anywhere in the United States unless the same district court, the U.S. Court of Appeals for the Fifth Circuit, or the U.S. Supreme Court issues a contrary decision.
Nevertheless, the court’s decision does not necessarily eliminate the possibility that the Persuader Rule will be implemented in the future. The DOL could ultimately challenge the court’s ruling in future proceedings, including at the appellate level. Given this uncertainty, and until the Persuader Rule litigation is finally resolved, employers that seek advice regarding labor issues should continue to consult with counsel regarding the extent to which such activities could trigger reporting obligations and determine how they wish to proceed in light of the rule. As previously recommended, employers should consider entering into agreements now with any consultants or attorneys who they anticipate will provide them with labor and employment law advice or services on or after July 1, 2016.5