United States: Federal Court Enjoins DOL's Controversial "Persuader" Rule

Earlier this week, the U.S. District Court for the Northern District of Texas issued a nationwide injunction barring the U.S. Department of Labor (DOL) from enforcing its controversial new "persuader rules" issued earlier this year. The District Court's timely action provides an immediate, if temporary, reprieve from the DOL's onerous new reporting disclosure requirements imposed upon consultants – including attorneys – who provide certain types of labor relations services and the employers who procure such services.

Background on the Persuader Rule

Earlier this year, the DOL issued its final rule addressing the "advice exception" to the so-called "persuader rule" under the Labor Management Reporting and Disclosure Act of 1959 (LMRDA). The LMRDA requires employers to report agreements and payments with a consultant, where an object thereof, directly or indirectly, is to persuade employees in the exercise or the manner of exercising the right to organize and bargain collectively through representatives of their own choosing. Employers fulfill this requirement by filing LM-10 forms with the DOL within 30 days of making an agreement or arrangement for reportable activities.

The LMRDA imposes a similar reporting requirement upon consultants (including attorneys) who engage in reportable "persuasive" activities. Consultants fulfill their statutory obligations by filing LM-20 forms within 30 days of the agreement or arrangement to provide services within the ambit of the LMRDA. Consultants who file LM-20 forms also must file LM-21 forms annually with DOL. The LM-21 forms call for disclosure of labor relations services provided to all of a consultant's clients, not just those receiving covered "persuader" services, along with the fees received for those services.

However, the statute also provides that the rendering of advice by a consultant to an employer does not trigger reporting. Under the prior persuader rule, the DOL interpreted the "advice exemption" broadly, such that attorneys and other labor relations consultants were only required to report their being hired and the services they provided when the attorneys and other consultants: (i) made direct contact with employees to persuade employees regarding the exercise of their rights to organize; or (ii) when they gathered information not publically available on the employees or the union to assist in this persuasion. Hence, consultants traditionally have been able to review, revise and prepare communications pieces for management's use, and generally advise management on "what to say," without either party having to report the activity to the DOL, so long as the employer was free to accept or reject the consultant's recommendations and the attorney refrained from direct contact with the employees who were the subject of the persuasive activity.

DOL Substantially Curtails the Advice Exemption

On March 25, 2016, the DOL issued its new rule concerning the interpretation and application of the advice exemption, in which it has abandoned the "direct" vs. "indirect" framework for evaluating the applicability of the advice exemption. While direct communications still must be disclosed, reporting also is required when a consultant who has no direct contact with employees undertakes any of the following activities with an object to persuade employees:

  • Plans, directs or coordinates activities undertaken by supervisors or other employer representatives, including meetings and interactions with employees.
  • Provides material or communications to the employer for dissemination or distribution to employees.
  • Conducts a seminar for supervisors or other employer representatives.
  • Develops or implements personnel policies for the employer.

The DOL states that the purpose of the new rule is to "increase transparency to workers" on matters related to union organizing and collective bargaining. The new rule had an effective date of April 25, 2016, and is applicable to all agreements or arrangements for covered services entered into on or after July 1, 2016. Employers and consultants nationwide have been scrambling to develop strategies for complying with the new rule, and several law firms, including Fox Rothschild, announced they would not engage in activities deemed to be reportable under the new rule.

Federal District Court Temporarily Enjoins Enforcement of the Rule

On June 27, 2016, in National Federation of Independent Business v. Perez, Judge Sam Cummings of the U.S. District Court for the Northern District of Texas issued a nationwide preliminary injunction barring enforcement of the rule, after concluding that the plaintiffs/intervenors, including several state attorneys general, were substantially likely to prevail in their claims that the rule violates the LMRDA, the Regulatory Flexibility Act and the First and Fifth Amendments to the Constitution. Based upon the court's action, the DOL is temporarily enjoined from enforcing any aspect of the new rule pending further action by the court, the Fifth Circuit Court of Appeals or the U.S. Supreme Court.

Next Steps

The court's action in NFIB v. Perez provides employers and consultants with temporary respite from the DOL's burdensome new reporting and disclosure requirements. However, the DOL may appeal Judge Cummings' decision as a matter of right to the Court of Appeals, and it is possible that the DOL could prevail in a "trial on the merits" in the district court, which has yet to be scheduled. Accordingly, it is premature to write off the new persuader rule as "dead."

We will continue to monitor developments in this area and keep clients informed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Robert C. Nagle
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