By Patrick J. Hoban & David P. Frantz*
On June 27, 2016, a federal court in Texas issued a preliminary injunction barring the U.S. Department of Labor (“DOL”) from implementing its “persuader” rule (“Persuader Rule”), which dramatically expands the scope of the reporting requirements under the Labor-Management Reporting and Disclosure Act (“LMRDA”). This ruling comes as a relief to employers, labor relations consultants, and attorneys alike, as the Persuader Rule requirements would have gone into effect on July 1st absent an injunction. The injunction order follows on the heels of a Minnesota federal court’s decision not to enjoin the DOL from implementing the rule. A similar action also is pending before a federal court in Arkansas.
Under the LMRDA, employers and their labor relations consultants are required to report agreements to engage in activities to persuade employees regarding their rights to unionize and collectively bargain. Reports must include the nature of the services consultants provide and the costs of those services. These reporting requirements are subject to certain exemptions, including an exemption when the nature of the service is to provide the employer with “advice.”
Historically, the DOL interpreted the advice exemption to exclude from the reporting requirements an employer’s engagement of consultants, including attorneys, to assist in responding to a unionizing campaign, where: (1) the consultant or attorney had no direct contact with the employees; and (2) the employer retained discretion to reject the recommendations of the consultant or attorney. The DOL’s newly promulgated Persuader Rule turns this long-standing interpretation on its head by opening up activities to reporting even in the absence of direct contact with employees. This change created great uncertainty as to the types of previously-exempt activities, including attorney-client communications, that potentially could be subject to reporting under the new rule.
In ordering the preliminary injunction, the Texas federal court took issue with the Persuader Rule as it effectively obliterates the LMRDA’s advice exemption. The court noted, “despite a very lengthy Final Rule, [the DOL] never adequately explains why it is abandoning the prior, longstanding Advice Exemption now.” The court held, among other things, that the DOL’s rule likely violates employers’ First Amendment rights, is unconstitutionally vague, and would cause attorneys to violate their professional conduct obligations. Finally, the court held the injunction applies nationally, as the plaintiffs allege the Persuader Rule is facially invalid and the injury resulting from its enforcement will be national in scope.
The Persuader Rule became effective on April 25, 2016 and “will be applicable to arrangements and agreements as well as payments (including reimbursed expenses) made on or after July 1, 2016.” However, in the proceeding before the federal court in Arkansas, the DOL clarified that it would “not apply the Rule to arrangements or agreements entered into prior to July 1, 2016, or payments made pursuant to such arrangements or agreements.” Accordingly, employers who obtain indirect persuader services under an agreement or engagement entered into prior to July 1, 2016 should not be subject to the Persuader Rule’s expanded reporting requirements.
Thanks to the Texas federal court’s injunction order, the Persuader Rule’s implementation will be delayed beyond July 1st. While it is possible that the Persuader Rule ultimately will be ruled unenforceable, that outcome is far from certain. Accordingly, employers should consider entering into engagement agreements with consultants/attorneys prior to July 1, 2016 to avoid the Persuader Rule’s expanded reporting requirements.
*Patrick Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. For more information about the DOL’s persuader rule or labor & employment law, please contact Pat (pjh@zrlaw.com) at 216.696.4441.
*David Frantz practices in all areas of labor and employment law. For more information about the DOL’s persuader rule or labor & employment law, please contact David (dpf@zrlaw.com) at 216.696.4441.
