July 5, 2016 | Commentary on Labor Regulation, Rule of Law

Department of Labor’s Radical Reinterpretation of the Persuader Rule is Enjoined: A Victory for Fairness, Separation of Powers, and for the Attorney-Client Privilege

Last week, Senior U.S. District Court Judge Sam Cummings of the Northern District of Texas issued a nationwide injunction to prevent implementation of the Department of Labor’s radical new reinvention reinterpretation of the ‘persuader rule.’ The court’s well-reasoned and thorough decision has put a halt, at least temporarily, to this egregious example of executive overreaching to support this Administration’s union allies, but which posed a genuine threat to the confidentiality of attorney-client communications.

It is no secret that union membership in America has been in decline. Nor is a secret that, from making unconstitutional recess appointments to the National Labor Relations Board (NLRB), to attempting to change the entire dynamic of franchising through amendments to the joint-employer rules, to supporting the establishment of micro-bargaining units, to revising the rules in order to provide for “ambush” elections (which has reduced the rime for union elections by 40%, from a prior average of 38 days, since the change was implemented in April 2015), this Administration has bent over backwards to try to reverse this trend.  The Administration may have received a boost in its efforts through the untimely death of Justice Antonin Scalia, who, in all likelihood, would have provided the decisive vote in Friedrichs v. California Teachers Association striking down compulsory dues to public sector unions. DOL’s reinterpretation of the persuader rule would be another dramatic step to prop up unions by depriving employers of the advice they need when confronted with union organizing efforts.

 As I have previously written:

Since 1959, the Labor Management Reporting and Disclosure Act (LMRDA), commonly known as the Landrum–Griffin Act, has protected workers who want to unionize by ensuring that their employer cannot organize a stealth anti-union campaign. Under an administrative rule promulgated by the Department of Labor to implement Section 203 of the LMRDA, an employer must disclose certain information to the DOL when it hires someone to communicate with employees about unionization and labor-related issues.  For example, if a company is concerned that its workers might unionize and calls in a consultant to present information to employees that is designed to persuade the employers not to unionize, the company must report that it has hired a persuader and the amount paid to the persuader for his services.  …  The LMRDA’s reporting requirements are paired with a broad advice exemption that reflects Congress’s intent to safeguard the confidentiality of a lawyer’s advice to his employer clients.

Failure to comply with these reporting requirements can result in civil penalties or even criminal prosecution for willful violations.

Since 1962, recognizing that an excessively-narrow interpretation could have a chilling effect on important attorney-client communications, the DOL has interpreted the advice exemption to exclude legal advice and other legal services when the lawyer had no direct contact with the rank-and-file employees being “persuaded.”  Under this bright line test, indirect persuader activities, which are routinely provided to management by law firms and other consultants, were not reportable under Section 203(b).  But, if DOL gets its way, not any more.

Under the guise of promoting transparency, DOL has cast aside 50 years of settled practice to reinterpret the rule so as to require lawyers who provide legal advice to their employer clients and engage in activities with “an object, directly or indirectly, to persuade” (defined, unhelpfully, to include communicating with supervisors and developing materials, speeches, and personnel policies that “explicitly or implicitly” refer to unions or “affect employees’ exercise of their rights”) will have to file periodic disclosure reports with DOL that will be publicly available, even if those lawyers have no direct contact with the client’s employees.  To make matters worse, the information that the lawyers (and their clients) will be required to disclose is extensive, sensitive, and intrusive, including the identity of the client and the existence of the relationship, the general nature of the legal representation and the tasks performed, the amount of legal fees paid, and the amount of any disbursements made by the lawyers on account of labor relations advice or services. 

As if that wasn’t bad enough, once the reporting requirement has been triggered, a lawyer must report such information for all of its employer clients, not just those clients for whom the lawyer engaged in persuader activities.  Imagine having to advise an employer client that if the lawyer provides strategic advice to the client about how to address a union organizing effort or if the client attends a union-avoidance seminar conducted by the lawyer, both the lawyer and the client will have to report a myriad of sensitive information that will be available to the public. Imagine having to advise an employer-client that such disclosures may have to be made if the lawyer engages in such so-called persuader activities on behalf of another employer-client. Such information could, of course, subject the client to adverse publicity or to being targeted by a union.

Do you think that the client might choose to forego hiring the attorney or the attorney, facing the loss of many of his clients, may cease providing services that could be deemed persuader activities? You bet!

When DOL first proposed this change in 2011, William Robinson, who was the president of the American Bar Association, expressed opposition to the rule in a letter, stating as follows:

By requiring lawyers to file detailed reports with the Department stating the identity of their employer clients, the nature of the representation and the types of legal tasks performed, and the receipt and disbursement of legal fees whenever the lawyers provide advice or other legal services relating to the clients’ persuader activities, the Proposed Rule could chill and seriously undermine the confidential client-lawyer relationship. In addition, by imposing these unfair reporting burdens on both the lawyers and the employer clients they represent, the Proposed Rule could very well discourage many employers from seeking the expert legal representation that they need, thereby effectively denying them their fundamental right to counsel.

Quite so. Needless to say, the ABA continues to oppose this radical proposal. 

And how should lawyers respond to this?  Perhaps unwittingly betraying its true intentions, DOL stated the following, again unhelpfully, in the Federal Register:

[A]ttorneys who have an ethical reservation about their obligations under the rule to report information about their clients always have the option to choose to decline to provide persuader services to clients who refuse to provide express consent to disclose the required information, and limit services to legal services, which do not trigger reporting in any event.

Once the NLRB notifies an employer that a hearing has been scheduled to discuss a union petition, which is often the first time that an employer finds out about the matter, a lawyer’s legal and tactical advice is essential if the employer is to comply with its legal obligations, figure out its options, and communicate with the entity’s employees, and time is of the essence since the clock is running on the timing of the election. Smaller employers, lacking in-house counsel or human resources staff, in particular need such advice. DOL’s reinterpretation of the persuader rule makes it far more likely that advice to counteract the union’s efforts will not be available, which, one suspects, is precisely why they did it.

Moreover, the costs to the U.S. economy of implement this rule would be enormous. While DOL estimated that the cost would be relatively de minimis  -- $826,000 per year  --  Judge Cummings concluded that, in fact, the cost of implementation to the U.S. economy would be between $7.5 billion and $10.6 billion the first year, and between $4.3 billion and $6.5 billion per year after that. 

Fortunately, in granting the injunction, Judge Cummings saw through DOL’s other arguments too.  In finding that the plaintiffs had met their burden of demonstrating a substantial likelihood of success on the merits, Judge Cummings provided several alternative bases to support his conclusion.  The court ruled that DOL exceeded its statutory authority under the LMRDA in that its reinterpretation of the persuader rule would “effectively eliminate[e] the statute’s Advice Exemption contrary to the plain text of Section 203(c).”  In this regard, the court noted that, “DOL improperly reads an exception into the statute’s advice exemption that is not there, treating it as exempting all advice except advice that has an object to persuade.”  Additionally, Judge Cummings concluded that by failing to explain why it was abandoning an interpretation that had existed throughout the entire existence of the LMRDA, and in a way that was inconsistent with the confidentiality that must be maintained as part of the attorney-client relationship, DOL was acting arbitrarily and capriciously. Furthermore, the court concluded DOL’s new content-based rule would infringe on the First Amendment rights of employers to express opinions about union organizing efforts and to retain counsel when doing so. He also concluded that DOL’s new interpretation of the persuader rule  -- using phrases policies that “implicitly” refer to unions or that “affect employees’ exercise of their rights” – was unconstitutionally vague, and therefore void under the Due Process Clause of the Fifth Amendment, and that DOL’s shoddy economic impact analysis violated the Regulatory Flexibility Act.

DOL will not, of course, take this lying down, and will, no doubt, appeal this nationwide injunction, so we have not heard the last of this issue.  Nonetheless, the injunction is great news and should be celebrated by employers, an economy already buckling under an estimated $1.88 trillion in regulatory costs, anyone concerned about the integrity of the attorney-client relationship, and anyone concerned about the rampant executive overreaching that has come to define this Administration.

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John G. Malcolm is the Director of the Edwin Meese III Center for Legal and Judicial Studies, and the Ed Gilbertson and Sherry Lindberg Gilbertson Senior Legal Fellow, at The Heritage Foundation, and is also the Chairman of the Federalist Society’s Criminal Law Practice Group. The author would like to gratefully acknowledge the assistance of Nathan Howe, who is a member of the Young Leaders Program at The Heritage Foundation.

About the Author

John Malcolm Director, Edwin Meese III Center for Legal and Judicial Studies, and the Ed Gilbertson and Sherry Lindberg Gilbertson Senior Legal Fellow
Edwin Meese III Center for Legal and Judicial Studies

Related Issues: Labor Regulation, Rule of Law

This piece first appeared on The Federalist Society.