A Texas federal judge issued a nationwide preliminary injunction this week barring the Department of Labor (DOL) from enforcing its Persuader Rule, which was set to take effect on July 1, 2016. This is the second federal court decision that calls into question the validity of the Persuader Rule. Last week, a Minnesota federal judge found that the plaintiffs, an association of law firms, demonstrated a likelihood of proving that some portions of the Persuader Rule impermissibly conflict with the Labor Management Reporting and Disclosure Act (LMRDA), but refused to enjoin the Persuader Rule because the plaintiffs failed to establish the requisite irreparable harm to warrant an injunction or stay.

The Persuader Rule increases reporting obligations for individuals and entities, including law firms, that engage in certain activities designed to persuade employees against unionizing. Under Section 203(c) of the LMRDA, a lawyer or consultant providing "advice" is specifically exempt from reporting. The new rule changes DOL's view of what falls under that "advice" exemption. A fuller discussion of the Persuader Rule and the changes in the reporting obligation under the DOL's rule appears below.

Addressing the "advice" exemption, U.S. District Judge Sam Cummings stated:

DOL's New Rule is not merely fuzzy around the edges. Rather the New Rule is defective to its core because it entirely eliminates the LMRDA's Advice Exemption. In whatever manner the DOL defines "advice," it must do so consistent with the statute and therefore must actually exempt advice, including advice that has an object to persuade. The New Rule not only fails to do that, it does the exact opposite: it nullifies the exemption for advice that relates to persuasion.

The court in Minnesota also repeatedly noted that the DOL was unable to explain the obvious contradictions in its own position, stating, for example: "By starting with the premise that, if something is persuader activity, it cannot possibly be advice, the DOL ends up struggling mightily to define as non-advice activity that any reasonable person would define as advice" and "in the course of that struggle [to distinguish reportable activity and advice], DOL ends up drawing lines that are simply incoherent . . . [and] categorizes conduct that clearly constitutes advice as reportable persuader activity."

The Texas court also was troubled by the conflict between the reporting requirements of the Persuader Rule and the obligations of attorneys nationwide to protect the sanctity of attorney-client privilege and confidential information under state rules of professional conduct.

In contrast to the Minnesota court ruling, Judge Cummings found that plaintiffs were likely to succeed on the merits of their arguments based on the First Amendment, vagueness, arbitrary and capricious nature of the regulations, and Regulatory Flexibility Act. In finding that the plaintiffs established the requisite irreparable harm to justify a nationwide injunction, the court cited evidence presented at the hearing that the Persuader Rule "will deter employers from seeking counsel and exercising their free speech rights." The court further found that "attorneys will be deterred from advising employers where that advice might under DOL's New Rule be deemed to trigger reporting despite the LMRDA's Advice Exemption." Conversely, the court found that the DOL would suffer no harm as a result of an injunction because the Persuader Rule is likely invalid and any delay in implementation only preserves "the status quo that has been in place for the past half-century."

An additional case challenging the Persuader Rule is pending in federal district court in Arkansas. No court ruling has been issued yet in that case.

The Persuader Rule

Since the 1960s, the DOL's interpretation of the "advice exemption" excluded legal advice and other legal services when the lawyers had no direct contact with the rank-and-file employees being "persuaded." Thus, under this bright line test, indirect persuader activities, which are routinely provided by law firms, were not reportable under Section 203(b).

The Persuader Rule, issued on March 23, 2016, abandons the clear standard of requiring direct contact with employees as a trigger for reporting, and replaces it with a narrow definition of "advice," effectively expanding the scope of reportable activity. Under the Persuader Rule, in addition to direct employee persuasion (which was always reportable), employers, consultants, and lawyers now must disclose activities that fall into four new categories of indirect persuasion:

  • Planning, Directing, or Coordinating Supervisors or Managers. Reporting is required if a consultant or lawyer, with the object to persuade employees with respect to union organizing or collective bargaining rights, plans, directs, or coordinates activities undertaken by supervisors or other employer representatives (e.g., union avoidance training or advice).

  • Providing Persuader Materials. Reporting is required if the consultant or lawyer provides materials to an employer, for dissemination to employees with an object to persuade (e.g., drafting union campaign materials). This includes drafting, revising, or selecting materials for employee distribution and revising employer materials if the object of the revisions is to persuade, as opposed to ensure legal compliance.

  • Conducting a Seminar for Employer Representatives. Reporting is required for holding a seminar for employers if the consultant or lawyer also assists attendees in developing specific persuasive anti-union tactics and strategies for use by the employers.

  • Developing or Implementing Personnel Policies or Actions. Reporting is required if the consultant or lawyer develops personnel policies or actions for the employer with an object to persuade employees. This includes, for example, revising employer policies and procedures with a persuasive intent. Again, mere review for legality would not be covered.

Reporting Obligations

Engaging in reportable persuader activities triggers an obligation to file publicly available reports with the DOL. The reporting obligation is extremely broad and potentially violates state ethics rules regarding attorney-client confidentiality.

Under the Persuader Rule, an employer that enters into a reportable arrangement with a consultant or lawyer is required to file an LM-10 report, which includes information about each reportable activity, the cost of that activity, and the date payment was made to the consultant or law firm. Consultants and lawyers must make corresponding disclosures on DOL Forms LM-20 and LM-21. Form LM-20 includes information concerning the nature and the terms of the arrangement, including the engagement letter. The most troubling report that must be filed is the LM-21. The disclosures on the LM-21 report include the identity of and fees received from all clients for which the consultant or lawyer provided "labor relations advice or services" during the year. Therefore, an entity that engaged in persuader activity would be obligated to report information regarding the scope of labor and employment representation and fees from all labor relations clients, including those for whom no persuader work had been performed. The LM-21 report was not subject to the recent rulemaking, and the DOL intends to issue a Notice of Proposed Rulemaking regarding this form in September 2016. In the meantime, the DOL suspended the LM-21 Form requirement, likely until the legal challenges to the Persuader Rule are resolved.

Employers who have questions about the current status of the Persuader Rule or are concerned about the implications of the Persuader Rule should contact Shannon D. Farmer at 215.864.8221, Meredith C. Swartz at 215.864.8132, or the Ballard Spahr attorney with whom they generally work.

Copyright © 2016 by Ballard Spahr LLP.
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