July 01, 2016

Labor Department persuader rule blocked by court in Texas

The U.S. District Court for the Northern District of Texas granted a nationwide preliminary injunction last month preventing the Department of Labor (DOL) from implementing any part of the new persuader rule that the ABA says would require many management-side labor lawyers to divulge confidential client information to the federal government.

The final persuader rule − which was scheduled to apply to arrangements, agreements and payments made on or after July 1 – substantially narrows the department’s longstanding interpretation of what activities performed by lawyers and other consultants constitute “advice” to employer clients and thus are exempt from the extensive reporting requirements in Section 203 of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA). The Texas lawsuit, National Federation of Independent Business v. Perez, is one of three lawsuits opposing the new rule. An earlier decision from the U.S. District Court for the District of Minnesota in Labnet v. U.S. Department of Labor found the new rule to be partially invalid but did not grant an injunction. A third case, Associated Builders and Contractors of Arkansas v. Perez, is pending in the U.S. District Court for the Eastern District of Arkansas.

Prior to issuing the injunction, the Texas district court heard from eight witnesses, including ABA Past President Wm. T. (Bill) Robinson III, who testifed as an expert witness regarding a number of serious flaws in the final DOL rule. In its order, the court quoted extensively from the ABA’s original 2011 comment letter to DOL and also referenced ABA President Paulette Brown’s statement for the record of an April 27 hearing on the rule held by the House Education and the Workforce Subcommittee on Health, Employment, Labor and Pensions.

The court concluded that the new rule would cause the plaintiffs to suffer irreparable harm in various ways, including reducing access to legal advice and representation and creating conflicts with Texas’ and other states’ attorney ethical rules.

The longstanding persuader rule contained in Section 203 of the LMRDA requires employers and their labor consultants, including lawyers, to file extensive periodic disclosures with the department when they engage in certain activities or enter into agreements or arrangements to persuade employees on union formation or membership issues. However, Section 203(c) of the act has long been interpreted to exempt lawyers from the rule’s reporting requirements when they merely provide advice or other legal services directly to their employer clients on these unionization issues but have no direct contact with the employees.

The new rule requires lawyers who provide both legal advice to employer clients and engage in any persuader activities to file periodic disclosure reports even if they have no direct contact with the employees. These reports will require disclosure of a substantial amount of confidential information, including the existence of the lawyer-client relationship and the identity of the client, the general nature of the legal representation, and a description of the legal tasks performed. The reports could also compel disclosure of a great deal of confidential financial information about clients that is unrelated to persuader activities that the LMRDA is intended to monitor.

In particular, unless DOL’s existing financial disclosure rules are substantially changed, lawyers deemed to be engaging in any direct or indirect persuader activities will be required to report all receipts from and disbursements on behalf of every employer client for whom the lawyers performed any “labor relations advice or services,” not just those employer clients for whom persuader activities were performed.

There also is strong opposition to the new rule in Congress, where several resolutions opposing the rule have been introduced in the House and Senate and more than 70 House members are urging that an amendment be attached to fiscal year 2017 appropriations legislation prohibiting DOL from spending money to implement the rule.

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