Friday, July 1, 2016

Federal Judge Enjoins USDOL “Persuader Activities” Rule

On June 27, Senior District Court Judge Sam R. Cummings of the U.S. District Court for the Northern District of Texas issued an injunction barring the implementation of “any and all aspects” of the U.S. Department of Labor’s Persuader Advice Exemption Rule pending a final resolution of the merits of the case.  National Federation of Independent Business, et al. v. Perez (N.D. Tex., June 27, 2016).  The ruling comes five days after the U.S. District Court for the District of Minnesota declined to issue an injunction against implementation of the Persuader Rule, even though the court determined that the plaintiffs in that case had “a strong likelihood of success” on the merits of their claim that the Rule is contrary to the plain meaning of the Labor-Management Reporting and Disclosure Act (LMRDA), 29 U.S.C. §401, et seq., the statute that the Rule purports to enforce.  Labnet, Inc., et al. v. United States Department of Labor, et al., (D. Minn., June 22, 2016).

Section 203(a) of the LMRDA contains a provision requiring an employer who contracts with a consultant for the purpose of engaging in “persuader activities” (generally, activities designed to persuade employees not to support or vote for a union)  to file a report (on Form LM-10) disclosing the agreement and its terms.  Section 203(b) of the LMRDA requires a similar disclosure (on Form LM-20) by the consultant.  Section 205 of the LMRDA provides that such disclosures are public information.  

Section 203(c) of the LMRDA contains an exemption to the reporting requirements called the “Advice Exemption”.  This exemption provides that the reporting requirements do not apply to representation of an employer for the purpose of giving advice, representing the employer in legal or administrative proceedings, or representing the employer in collective bargaining.  Section 204 of the LMRDA exempts attorneys from having to include in any report any information communicated to them in the course of the attorney-client relationship.

Illinois has a similar provision in the Illinois Public Labor Relations Act.  Section 10(a)(6) of that statute provides that it is an unfair labor practice for a public employer to permit the expenditure of public funds to any external agent or firm in an attempt to influence representation elections.  The statute provides, however, that “nothing in this subsection shall be construed to limit an employer’s right…to seek or obtain advice from legal counsel”.  

From 1962 until the publication of the final Persuader Rule in 2016, the Department of Labor (DOL) had interpreted the Advice Exemption as excluding from the reporting requirements any engagement of a consultant (including an attorney) to provide assistance to the employer in responding to a union organizing campaign, so long as the consultant did not have direct contact with employees and so long as the employer was free to accept or reject the consultant’s recommendations.  In 2011, however, the DOL published a notice of proposed rule-making in which it proposed a substantial revision of the Advice Exemption.  Five years later, the DOL adopted a final rule that, according to the Texas court, “no longer protects closed-door confidential communications between attorney and client.”  Indeed, the Texas court found, the proposed rule violates canons of professional responsibility relating to confidential client information in all states.    

The new Advice Exemption Interpretation would require all consultants (including lawyers, law firms, and employer associations) who engage in such Persuader Activities to file with the DOL a revised Form LM-20 (Agreement and Activities Report) and also a Form LM-21 (Receipts and Disbursements Report).  These forms would require reporting consultants to “[r]eport all receipts from employers in connection with labor relations advice or service regardless of the purposes of the advice or services”.  Moreover, once having engaged in even one reportable persuader activity, the consultant or law firm would then have to report for all labor clients – regardless of the specific services (persuader or non-persuader) performed for them – all receipts received on account of labor relations advice and services performed.  

In applying the Rule to specific circumstances, the DOL says that the reporting requirement is triggered, contrary to the prior rule, in four scenarios when the consultant or lawyer has no direct contact with employees.  These are circumstances in which the consultant or lawyer undertakes any of the following activities with an objective of persuading employees:

a) Planning, directing, or coordinating activities undertaken by supervisors or other employer representatives, including meetings and interactions with employees; 

b) Providing material or communications to the employer, in oral, written, or electronic form, for dissemination or distribution to employees; 

c) Conducting a seminar for supervisors or other employer representatives; or

d) Developing or implementing personnel policies, practices, or actions for the employer.

The activities under d) are particularly troublesome, as the review and development of personnel policies is an integral part of the services rendered by law firms to clients.  And while most personnel policies have nothing to do with persuader activities, the inclusion of this category of traditional legal advice under the rubric of persuader activity poses risks for law firms in their efforts to serve their clients while still protecting client confidentiality. 

As both the Texas and Minnesota courts found, the fundamental flaw in the new Persuader Rule is the concept that “advice” and “persuader activities” are mutually exclusive concepts.  As the Minnesota court said:
By starting with the premise that, if something is persuader activity, it cannot possibly be advice, 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, DOL ends up drawing lines that are simply incoherent.
Incoherent lines, of course, mean assumption of risk by the employer and the consultant or attorney.  As the Texas court suggested, some law firms may go out of the business of providing labor law services to clients rather than to assume that risk.

In the National Federation of Independent Business case, the Texas court found that the plaintiffs were substantially likely to succeed on their claims and that they had shown that irreparable harm would result if the injunction were not granted.  The court found that the plaintiffs likely would succeed on their claim that the DOL lacked statutory authority to enforce its new interpretation and that, in fact, the Rule is “contrary to the express language of the LMRDA’s Advice Exemption”.  The court also found that the plaintiffs likely would succeed in their claim that the Rule is arbitrary, capricious, and an abuse of discretion.   In that regard, the court found that the Rule conflicts with Section 204 of the LMRDA by requiring disclosure by attorneys of confidential client information.  

Finally, the court found that the plaintiffs likely would succeed in their contention that the Rule violates rights of free speech and association under the First Amendment.  As the court said, “DOL’s New Rule imposes content-based burdens on speech and cannot survive strict scrutiny”.  

Since 1962, management labor attorneys in the private sector have relied upon the distinction between legal advice and persuader activity that had been drawn by the now-superseded regulations.  Because the blurring of that distinction presents problems for lawyers and clients alike, the outcome of the issues presented in the Texas and Minnesota cases is of critical importance to the practice of labor law as we know it.  This is true whether or not the Illinois Labor Relations Board or the Educational Labor Relations Board decides to follow the DOL’s lead as it may or may not be blessed by the courts