By Patrick J. Hoban*
Yesterday, the Federal District Court for the Northern District of Texas made permanent the preliminary injunction it issued earlier this year to prevent the U.S. Department of Labor (“DOL”) from enforcing its controversial “persuader” rule (“Persuader Rule”). Judge Sam R. Cummings announced the decision on Wednesday in a concise two-page opinion, in which he concluded that the Persuader Rule violated the federal Administrative Procedure Act, 5 U.S.C. § 706 (“APA”) and is unenforceable. The case, National Federation of Independent Businesses v. Perez, No. 5:16-cv-00066-C (N.D. Texas, November 16, 2016), effectively converts the preliminary injunction granted by the same court on June 27, 2016 into a permanent injunction with nationwide effect.
The Persuader Rule, which took effect on April 25, 2016, dramatically expanded the reporting requirements imposed on employers and their labor relations consultants under the Labor-Management Reporting and Disclosure Act of 1959 (“LMRDA”). Under the LMRDA, employers and their labor relations consultants are required to disclose agreements to engage in activities to persuade employees regarding their rights to unionize and collectively bargain. These onerous disclosure reports required that employers, attorneys and consultants provide details about the nature and cost of the services consultants provide. Although the reporting requirements were subject to certain exemptions, including an exemption related to the provision of “advice,” the DOL’s guidance on the Persuader Rule made clear that it would decide what services qualified as advice on a case-by-case basis.
Historically, the DOL has 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 new Persuader Rule upended this long-standing interpretation by requiring employers and labor relations consultants to report their agreements even in the absence of direct contact between the consultants and the employees.
U.S. Secretary of Labor Thomas E. Perez defended the Persuader Rule from withering criticism, describing the changes as a “matter of basic fairness” to ensure that workers have “the information they need to make informed choices about how they pursue their rights to organize and bargain collectively.” Employers, labor relations consultants, and attorneys opposed the changes. Of particular concern was the extent to which the Persuader Rule would have compelled employers and law firms to disclose information protected by the attorney-client privilege. Absent the Court’s June injunction, enforcement of the Persuader Rule and its new reporting requirements would have begun on July 1, 2016.
Yesterday, Judge Cummings granted summary judgment to those challenging the Persuader Rule and reiterated his previous conclusions that it was “defective to its core,” “arbitrary and capricious,” “violated free speech and association rights,” and was “unconstitutionally vague.” Additionally, Judge Cummings affirmed that the Persuader Rule violated the Administrative Procedures Act and that the DOL did not have authority to issue it. On these grounds, the Court issued a nationwide permanent injunction prohibiting enforcement of the Persuader Rule.
The DOL previously appealed Judge Cumming’s decision granting the preliminary injunction of its Persuader Rule to the U.S. Fifth Circuit Court of Appeals, but that appeal was rendered moot by Wednesday’s summary judgment ruling. However, in June 2016, a federal district court in Minnesota refused to enjoin the Persuader rule.
The Persuader Rule is one among several hotly-contested Obama administration changes to employment and labor relations law. Those changes have caused significant disruption and include the National Labor Relations Board (“NLRB”)’s “ambush” election rules, the NLRB’s Specialty Healthcare decision that opened the floodgates for “micro” union organizing, and the DOL’s changes to the salary threshold for exempt status under the Fair Labor Standards Act (“FLSA”) (which likely takes effect on December 1, 2016).
Like the Persuader Rule, the DOL changes to FLSA exemptions were also challenged in federal court in Texas by twenty-one states and multiple business entities – including challenges under the Administrative Procedures Act. Although the new FLSA exemptions rule takes effect on December 1, the judge in that case announced yesterday that on November 22 he will issue a decision on whether DOL will be prohibited from enforcing the new rule. As a result, we will soon see if the Eastern District of Texas reaches the same conclusion with regard to the changes to the FLSA exemptions as Judge Cummings did for the Persuader Rule.
Yesterday’s decision is subject to appeal. However, as President-Elect Donald Trump will take office in January, there is reason to believe the Trump DOL will not seek review. The Court’s ruling on the Persuader Rule provides employers with relief from reporting requirements and potential liability. As we look to the future, it is anticipated that Trump administration appointments at DOL and the NLRB may offer employers a more level playing field.
*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.
