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DOL persuader rule ‘defective to its core,’ enjoined nationwide

June 30th, 2016  |  Lisa Milam

By Lisa Milam-Perez, J.D.

Deeming the DOL’s controversial “persuader” rule “defective to its core,” a federal district court in Texas enjoined the agency from implementing the provisions on a nationwide basis. In a lengthy opinion, the district court parted ways with a federal court in Minnesota which, less than a week earlier, had refused to stop the DOL from forging ahead with its “reinterpreted” advice exemption rule and its revised Forms LM-10 and LM-20 (documents that must be filed when an employer engages a labor relations consultant to undertake efforts to persuade employees regarding whether to vote for union representation). But the Texas court saw a clear threat of irreparable harm and a balancing of hardships in the plaintiffs’ favor—noting the employer free-speech implications, the threat to attorney-client confidentiality, and the employee privacy concerns—observing that, as a practical matter, once employers are compelled to disclose the information requested by the  agency, there’s no taking it back (National Federation of Independent Business v. Perez, June 27, 2016, Cummings, S.).

“Not merely fuzzy.” Both courts, however, have concluded that in the end, the various plaintiffs bringing separate legal challenges to the DOL rulemaking will likely succeed on their claims that the rule is facially invalid. It conflicts with the Labor-Management Reporting and Disclosure Act (LMRDA), the rulemaking is arbitrary and capricious in violation of the Administrative Procedure Act, and the DOL exceeded its authority in promulgating it. It’s also unconstitutionally vague and thus violates due process (as well as employers’ First Amendment rights), according to the court in Texas. Finally, it runs afoul of the Regulatory Flexibility Act.

“DOL’s New Rule is not merely fuzzy around the edges,” the court wrote. “Rather the New Rule is defective to its core because it entirely eliminates the LMRDA’s Advice Exemption.”

Need for immediate counsel. To some extent, the Obama administration was hoisted on its own rulemaking petard here, as the shortened time frame and added employer obligations ushered in by the NLRB’s “quickie” election rule—which has thus far been impervious to legal challenge—convinced the court of the critical need by employers for immediate and unencumbered counsel, both legal and tactical, in the face of lightning-quick union elections.

“If a labor lawyer is going to tell an employer all he needs to know about what is coming at him, the lawyer cannot restrict their conversation to purely legal advice,” the court noted. “The typical employer-client is not capable of promptly and properly educating his employees as to the consequences of unionizing.” Inevitably, the attorney will assume a consultative role that will trigger the reporting requirements at issue here. And, while the ostensible purpose behind the rule is to ensure that employees know when outside attorneys have been hired to persuade them not to unionize, employees won’t even have access to this information before they place their votes anyhow. The “quickie” election rule has reduced the typical campaign to 21 days, but the LM-20 needn’t be filed until 30 days after an employer enters into a “persuader” agreement with outside counsel. The incongruity was not lost on the court.

Impact. According to the district court, the new rule would adversely impact employers large and small, as evidenced by testimony from numerous trade groups that told the court how its member employers would stand to suffer under the rule as promulgated. For one, they would be less likely to hire a lawyer for guidance in the face of an organizing campaign if they knew their retention agreements will be reported to the DOL on publicly available forms, the court heard. The American Bar Association also weighed in, citing the ethical dilemmas that the rule posed to practicing labor attorneys in providing legal counsel to their clients. (The state of Texas and nine other states intervened in this challenge, too, arguing that they have the right to regulate the practice of law in their states and to protect confidential attorney-client information.)

Moreover, attorneys told the court they would cease giving seminars on union avoidance strategies—and employers would stop going to them—lest they be compelled to divulge the names of attendees. Indeed, labor law practitioners testified they would stop representing employers in election campaigns altogether rather than adhere to the mandates of the new rule as well as the considerable costs of compliance. “Other law firms around the country have already started announcing their decisions to cease providing advice and representation that would trigger reporting under DOL’s New Rule,” the court observed.

Undoing the advice exemption. In light of these findings, the court found a substantial likelihood of success on the merits of plaintiffs’ challenge to the DOL rule, noting that the district court in Minnesota, in Labnet, Inc. v DOL, had concluded as much (despite its reluctance to pull the plug pending this eventual determination). The new advice exemption interpretation, in essence, eliminates the advice exemption. Quoting its sister court in Minnesota, the court here reiterated that, “‘[a]t the root of DOL’s problem is its insistence that persuader activity and advice are mutually exclusive categories.’” And, “‘[p]roceeding from that flawed premise, DOL categorizes conduct that clearly constitutes advice as reportable persuader activity.’”

The new rule erroneously insists that “advice” can never have “an object … to persuade” and that these objects are mutually exclusive. But that’s not what the LMRDA says. Both the Fifth Circuit and D.C. Circuit have acknowledged that the law allows for an overlap, and the DOL’s insistence to the contrary renders an entire statutory provision, LMRDA Section 203(b), “entirely superfluous.” Given the DOL’s flawed interpretation of the statute, and the grave harms likely to follow, the district court enjoined the agency from implementing the measure.

A big win. Jeffrey C. Londa, managing shareholder of Ogletree Deakins’ Houston office, was one of the attorneys representing the trade group plaintiffs on their successful challenge to the DOL rule. He told Employment Law Daily that the statutory LMRDA claims raised by the plaintiffs appear to have held the most sway with the district court. And while the Minnesota court also found the statutory challenges persuasive, the success in securing injunctive relief in this case also could be attributed in part to the parade of witnesses that testified in the Texas case. “We had eight witnesses testifying at the evidentiary hearing,” he said. “We gave the judge a lot more to consider here.”

Now what? “The DOL has the option to appeal or regroup. I would hope they’d pull the rule,” Londa said. “Two courts have already ruled against them.” Although we still don’t have a decision yet in the third court challenge (a lawsuit brought by the Associated Builders and Contractors filed in a federal court in Arkansas), it won’t matter, practically speaking, Londa pointed out, since the court granted the nationwide preliminary injunction here. Meanwhile, some practitioners are counseling clients to enter arrangements prior to July 1 (since the rule was to be effective July 1) in order to avoid the DOL reporting requirements. That will no longer matter if the preliminary injunction holds.

The attorneys representing the Minnesota challengers struck a triumphant tone as well. “Employers across America—both small and large—are celebrating today’s decision, because it stops the government’s illegal implementation of a bad rule, and protects employers’ right to seek counsel and get advice on sensitive and complicated labor matters,” said Millicent Sanchez, president of the Worklaw® Network and a partner at Swerdlow Florence Sanchez Swerdlow & Wimmer, in a statement issued after the Texas ruling. The Minnesota plaintiffs said they would continue to forge ahead with their parallel suit “to help cement the Texas victory.”