A federal district court in Texas has issued a permanent injunction blocking implementation of the U.S. Department of Labor’s (“DOL”) controversial “Persuader Rule,” which was promulgated under the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA”).^[1]

The LMRDA imposes public reporting obligations on employers and consultants who enter into agreements to persuade or influence employees’ exercise of their collective bargaining rights.  For more than 50 years, the DOL interpreted the LMRDA’s “Advice Exemption” as exempting from the statute’s onerous reporting requirements indirect “persuader activities” by labor relations consultants, including attorneys. The DOL’s Persuader Rule, however, which took effect on April 25, 2016, removed indirect persuader activities from its definition of exempt advice, thus subjecting confidential attorney-client communications and agreements to the LMRDA’s public reporting requirements.

Following the publication of the Persuader Rule on March 26, 2016, businesses and states filed three lawsuits seeking to enjoin nationwide implementation of the rule.^[2] On November 16, 2016, in National Federation of Independent Business v. Perez (Case No. 5:16-cv-00066), Judge Samuel R. Cummings of the United States District Court for the Northern District of Texas made permanent a preliminary injunction invalidating the Persuader Rule.  Absent a successful appeal to the Fifth Circuit Court of Appeals, the injunction relieves employers and their attorneys from the obligation to comply with the more onerous reporting requirements of the revised Persuader Rule, and leaves in place the previous, longstanding interpretation of the Advice Exemption.

Background

The DOL promulgated the Persuader Rule under Section 203 of the LMRDA.  The LMRDA requires employers and labor relations consultants, including attorneys, to publicly report details regarding agreements (and concomitant fee arrangements) where the purpose of the agreements (or fee arrangements) is “directly or indirectly to persuade employees concerning their rights to organize and bargain collectively.”  29 U.S.C. § 433(b).   Section 203(c) of the LMRDA, however, expressly exempts from its disclosure requirements activities that constitute giving “advice” to the employer or agreeing to represent an employer before any judicial or administrative tribunal, or in the course of collective bargaining negotiations. Id. § 433(c).

For over 50 years, the DOL has interpreted “advice” to exclude communications exclusively between the employer and labor relations consultants (including attorneys), provided: (1) the employer could review, revise, and/or reject the information from the labor relations consultant; and (2) the consultant did not directly communicate with or disseminate materials to employees.^[3]  Thus, an attorney’s indirect persuading activities, including, for example, recommending policy changes or ghost-writing talking points or scripts intended for use by the employer for persuader activities, were deemed to fall outside the scope of the LMRDA’s reporting requirements.

Under the revised rule, which took effect on April 25, 2016, and applied to all consultant agreements and arrangements entered into after July 1, 2016, the DOL significantly narrowed the scope of the advice exemption, such that indirect persuader activities no longer fell within the exemption.  As a result, confidential communications occurring exclusively between attorney and client intended to assist the employer with persuasive activities were potentially rendered subject to the reporting requirements of the LMRDA.^[4]

The Court’s Injunction

On June 27, 2016, the Perez Court issued an order granting plaintiffs’ request for a nationwide preliminary injunction precluding the DOL’s implementation of the Persuader Rule. As set forth in detail in our prior blog post regarding the preliminary injunction, the Court concluded that that there was a substantial likelihood that the DOL Persuader Rule was invalid on several grounds.  Specifically, it held that:

• The Persuader Rule violates the Administrative Procedures Act insofar as the language of Section 203(c) of the LMRDA is clear and unambiguous, and the DOL’s interpretation of the LMRDA violates the basic canons of statutory interpretation.^[5]

• The DOL’s new interpretation of the Advice Exemption is arbitrary, capricious, and unreasonable because it sets aside, without adequate explanation or analysis, a longstanding (i.e., 50-year-old) interpretation of the Advice Exemption, and contains reporting requirements that “are inconsistent with and undermine the attorney-client relationship and the confidentiality of that relationship.”^[6]

• The Persuader Rule violates the First Amendment rights of employers by imposing, without a compelling government interest, content-based burdens on employers’ ability to obtain legal advice, and on lawyers’ ability to give legal advice.^[7]

• The Persuader Rule violates the Due Process Clause of the Fifth Amendment because it is unconstitutionally vague.^[8]

• The Persuader Rule violates the Regulatory Flexibility Act (RFA) because the DOL “artificially excluded important costs of its implementation from consideration,” including the significant reporting burdens imposed on consultants.^[9]

In a brief order issued on November 16, 2016, pursuant to its authority under 5 U.S.C. § 706(2), the Court set aside as unlawful the Persuader Rule, and converted its preliminary injunction to a permanent injunction with nationwide effect. The Court based its holding on, and incorporated by reference, its detailed reasoning in the June 27, 2016, order granting Plaintiffs’ request for a preliminary injunction.

At present, the ultimate fate of the Persuader Rule is uncertain.  Although the Northern District of Texas’s preliminary injunction is currently on interlocutory appeal before the United States Court of Appeals for the Fifth Circuit (Nat’l Fed’n of Indep. Bus. v. Perez, No. 16-11315 (5th Cir. Aug. 29, 2016)),  the permanent injunction presumably mooted that appeal, making it unlikely the Fifth Circuit will hear the matter before the incoming Trump Administration assumes power in January 2017.  Observers will be watching closely to see whether the DOL takes steps to contest the ruling under the new administration.

_{[1] 81 Fed. Reg. 15,924 et seq.}

_{[2] National Federation of Independent Business v. Perez (Case No. 5:16-cv-00066, N.D. Tex.); Associated Builders and Contractors of Arkansas v. Perez (Case No. 4:16-cv-169, D. Ark.); Labnet Inc. v. United States Dep’t of Labor, 2016 U.S. Dist. LEXIS 81884, at *20-*21, Case No. 16-CV-0844 (D. Minn. June 22, 2016).}

_{[3] 81 Fed. Reg. at 15925.}

_{[4] Indirect persuader activities commonly undertaken by attorneys that might have been subject to reporting under the new Persuader Rule included: (1) behind-the-scenes planning, directing, or coordinating of the persuasive activities of supervisors or managers; (2) drafting or providing persuader materials to employers to disseminate to workers; (3) providing “off-the-shelf” and pre-prepared materials to the employer for use in persuading employees with respect to their collective bargaining rights; (4) conducting union avoidance seminars, and (5) developing or implementing personnel policies calculated to influence collective bargaining or organizing activities.}

_{[5] Nat’l Fed’n of Indep. Bus. v. Perez, No. 5:16-CV-00066-C, 2016 WL 3766121, at *28 (N.D. Tex. June 27, 2016).}

_{[6] Id. at *30.}

_{[7] Id. at  *34-35.}

_{[8] Id. at *36.}

_{[9] Id. at *37-39.}