On March 24, 2016 the DOL’s Office of Labor-Management Standards (OLMS) issued the so-called “persuader rule” that would have greatly inhibited the ability of employers to obtain legal advice in responding to union organizing campaigns. For nearly 50 years the DOL recognized that advice, including legal advice, is excluded from reporting under federal labor law. The new persuader rule would have forced lawyers and law firms that counsel a business on most labor relations matters to disclose not only their work with that client, but also all fees and arrangements for all clients for all labor-relations services. Several lawsuits were filed challenging this rule on statutory and First Amendment grounds. On June 27, 2016, a district court in Texas issued a preliminary injunction enjoining DOL from implementing the new rule. The district court then made that preliminary injunction permanent in November 2016, and DOL filed an appeal with the Fifth Circuit which remains pending.
DOL has now issued a new rule that rescinds the controversial Persuader Rule. Please join us for a status report regarding these developments, including a discussion of the new rule and how it may affect DOL’s authority in the future.
Christopher Murray, Shareholder, Ogletree, Deakins, Nash, Smoak & Stewart
Karen Harned, Executive Director, National Federation of Independent Business Small Business Legal Center
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Operator: Welcome to The Federalist Society's practice group podcast. The following podcast, hosted by The Federalist Society's Labor & Employment Law Practice Group, was recorded on Tuesday, July 31, 2018 during a live teleforum conference call held exclusively for Federalist Society members.
Wesley Hodges: Welcome to The Federalist Society's teleforum conference call. This afternoon our topic is titled The Persuader Rule and is hosted by our Labor & Employment Law Practice Group. My name is Wesley Hodges, and I'm the Associate Director of Practice Groups at The Federalist Society.
As always today, please note that all expressions of opinion are those of the experts on the call.
Today we are very fortunate to have with us Karen Harned who is the Executive Director at the National Federation of Independent Business Small Business Legal Center. Also with us is Christopher Murray who is Shareholder at Ogletree, Deakins.
After our speakers give their remarks today and have a bit of a back and forth, we'll move to an audience Q&A. So please keep in mind what questions you have for this subject or for one or both of our speakers. Thank you very much for speaking with us. Karen, I believe the floor is yours.
Karen Harned: Great. Thanks so much for having us, Wes. And thanks everyone for taking your time to be with us today. I'm going to start off providing a little background of what was going on prior to the rule, the latest rule DOL issued. And Chris is going to dive into that and then I'm going to wrap up and we'll take questions.
So with that, probably a lot of the people on this call were remembering that under the Obama administration's Department of Labor they issued what was called the Persuader Rule. And under the Labor Management Reporting and Disclosure Act that is a law that requires business owners that are facing a unionization effort to file reports with the government. It's called a Form LM-10, and they do that when they have agreements for consultants that they use to contact their employees in the midst of a union organizing campaign.
But the Persuader Rule that the Obama administration issued purported to extend those reporting requirements to cover behind the scenes consultant advice that didn't involve a consultant contacting the employees and telling them why, presumably, a union would not be good for that business. But rather when the consultant's providing advice, that was the purpose of it, which was ultimately to have a persuasive effect on the employees but wasn't a direct communication with them. So it might be some advice on what you can say in your speech to your employees as the CEO of an organization, or even maybe what you can have in your handbook with regards to a union policy or a non-union policy, if that’s what you have. Those types of things, those types of contacts, and those contacts are typically with attorneys and clients.
And so, by the administration proposing to extend that reporting requirement, there was a very big concern that the attorney-client communication privilege was getting eviscerated by this Persuader Rule. And so, that's really what brought the lawsuit. There was a concern with the attorney-client privilege being eviscerated. Also, there was going to be extensive, as I said, reporting so that anybody that did any -- it was really going to make it hard for small business owners, in particular, that didn't have in-house counsel with labor knowledge to really get advice they needed if somebody was trying to unionize their business because there was -- NFIB in full disclosure where I work, we had suit on this rule when the Department of Labor had issued it and said that it violated the First Amendment, that, obviously, pointed out the problems with attorney-client privilege, that it exceeded the statutory authority of the agency under the LMDRA by putting all of this attorney-client type of conversation into the advice, or taking it out of the advice exemption of that act.
And so all that to say that during the hearings in district court, there were a lot of horror stories, if you will, as to what would’ve happened under this rule. For example, associations all over Washington D.C. and the country that are doing anything to educate their members on union issues, what their rights are and are not, would be subject to reporting requirements where they'd have to list all the attendees of those seminars or whoever received any booklets or materials they might have provide, provide that information to the Department of Labor. Clearly, that would've caused concern for people and made them maybe think twice before taking those materials or attending those seminars because they would know they'd be on a hit list that would be public, that unions would know who they are and that sort of thing.
And similarly, small business owners, like those that I represent, if they're caught in the middle of a union campaign and there's an election, there's a lot of legal requirements associated with that, and they would need outside counsel. They would not have an attorney on staff to provide the advice they needed and how to handle that. And it was shown in our hearing that firms like Morgan Lewis no less were saying that if this rule goes into effect, we're going to get out of this business altogether. So the pool of people that small business owners would’ve been able to go to was going to go down dramatically had this rule gone into effect.
So all that to say when the Department issued its new rule repealing it, we were very grateful. And with that as background, I'm going to turn it over to Chris Murray from Ogletree, who also happened to be a fine representative of NFIB in our litigation against this rule. And he's going to talk about what the Trump administration's Department of Labor has done.
Christopher Murray: Thanks, Karen. So as Karen mentioned, this new rule, which was just published on July 18th, rescinds this Persuader Rule that was issued under the prior administration that Karen was just describing, which is commonly referred to as the Persuader Rule.
So this new rule, which rescinds that, that was promulgated against the backdrop of a lot of litigation. First, there was a case that the NFIB brought, which was filed on March 31, 2016 in the Northern District of Texas. And the co-parties, or the co-plaintiffs in that case, were the Lubbock Chamber of Commerce, the Texas Association of Business, the National Association of Home Builders, and the Texas Association of Home Builders brought that case. And they were then, ultimately, joined by the State of Texas and nine other states that intervened in support of their position.
In addition to that case, there were two other cases filed, one in Little Rock, Arkansas and the other in Minneapolis, Minnesota. So there was quite a bit of litigation that was prompted by the Persuader Rule. And as Karen mentioned, the plaintiffs in the NFIB case alleged that the rule was, first of all, it was contrary to the plain text of the LMRDA and so was invalid under Chevron and the APA—the Administrative Procedures Act. It also violated the First and Fifth Amendments according to our allegations in that case and the Regulatory Flexibility Act.
The district court held its preliminary injunction evidentiary hearing on June 20, 2016 and heard evidence, as Karen mentioned, from a number of witnesses. There were eight witnesses that testified altogether, representing a variety of perspectives on the impact of the rule, including its impact on attorneys, its impact on employers, and on trade associations representing and educating employers. And then on June 26, 2016, the district court issued its preliminary injunction, which was a pretty lengthy order. It was an 86-page injunction enjoining DOL from implementing the Persuader Rule.
Really, at the heart of the district court's decision was its interpretation of the plain language LMRDA under Chevron. As Karen described, the LMRDA imposes various disclosure and reporting requirements on employers and on consultants who advise employers relating to, I guess, what you would call "persuader activity," which is persuading employees how to exercise their rights to organize under the National Labor Relations Act. And Karen walked through those disclosure requirements. And the LMRDA also has an exception or an exemption from those reporting requirements for any advice.
What was at stake with the Persuader Rule is that for over 50 years, DOL had made clear that this advice exception in the LMRDA covered employers who retained attorneys and other consultants to advise them so long as the attorney or consultant did not have any direct contact with employees and as long as the employer was always free to accept or reject whatever suggestions or advice that the attorney or other consultant gave the employer. That advice was what was changed by the Persuader Rule, and under this rule issued in 2016, the DOL redefined advice in the LMRDA to cover only any oral or written recommendation regarding a decision or a course of conduct.
Now standing on its own, that definition seemed unobjectionable. The problem was how the DOL then treated that exemption for advice in conjunction with the other disclosure and reporting requirements. Those requirements under the LMRDA required disclosure and reporting for any activities where the object, directly or indirectly, was to persuade employees regarding their right to exercise, their right to unionize. Under the Persuader Rule, advice was viewed as mutually exclusive from activities with an object to persuade. So under this new test that the DOL was adopting, any activity that had an object to persuade would trigger reporting, and, theoretically, if advice from a lawyer had an object to persuade employees, that would now trigger reporting as well.
At the heart of the district court's decision was its determination that this trying to create a mutual distinction between advice and activities with an object to persuade was just -- it was not supportable by the plain language of the statute. The district court noted that under everyday activities that lawyers provide for clients, ordinary day-to-day employment law work, would constitute advice but could also have an object to persuade. For example, revising a handbook policy, or if you're reviewing benefits practices could now trigger an obligation for that employer and the attorney to report under the LMRDA if the employer was motivated to any degree by desire to remain union-free in adopting those policies or adopting those benefits.
So the district court concluded that the rule just on its face violated the LMRDA and agreed with the plaintiffs that, basically, the Persuader Rule eliminated the statute's advice exception contrary to the plain text. And the district court ruled in its preliminary injunction hearing that because the plain text of the LMRDA makes the intent of Congress clear that an exemption for advice, including advice with object to persuade exists, that's the end of the matter and the DOL must give effect to the unambiguously expressed intent of Congress to exempt advice from the LMRDA's reporting requirements.
The court also concluded that there was just a plain violation by the Persuader Rule. It went on to say that the DOL's new rule was not merely fuzzy around the edges, but was defective to its core because it entirely eliminated the advice exemption. And it went on to advise that in whatever matter DOL defines advice, it must do so consistent with the statute, and therefore must actually exempt advice, including advice that has an object to persuade.
The court also found beyond applying the Chevron step one analysis, the rule was also arbitrary and capricious, in part, because it interfered with employer's access to legal advice. As Karen mentioned, there was evidence presented at the hearing that lawyers would likely stop providing certain types of advice if it triggered reporting because that would create ethical conflicts for them, that employers may stop seeking advice because of those disclosure requirements. And the district court found that this interfered with this attorney-client relationship, and therefore made the rule arbitrary and capricious among other reasons. And the court also found that the rule was void for vagueness and violated the Regulatory Flexibility Act because it failed to account for all of the costs property of the rule.
So the district court enjoined the rule in June, and then in November of 2016, it converted its injunction to a permanent injunction and entered final judgement in December of 2016. The DOL did appeal, under the prior administration, did appeal that decision to the Fifth Circuit just shortly before the end of the prior administration. But then, once it reached the Fifth Circuit, repeatedly sought stays of that appeal. And then, in June of 2017, DOL issued its notice of proposed rulemaking to rescind the Persuader Rule.
What was interesting about that notice of proposed rulemaking was that the DOL said that it wanted to rescind the rule so that it could give further consideration to the legal and policy objections raised by the federal courts and other commentators. And that raised the prospect that the DOL might be looking at sort of a two-step rulemaking process here. First, it would rescind the rule, and then it might consider whether it might adopt some new rule in its place. That prospect created a bit of concern, not knowing exactly what the DOL might have in mind should it actually issue a new rule to replace the Persuader Rule. But the DOL received comments through late summer, I think through August of last year, on its notice of proposed rulemaking just to rescind the rule. And a lot of those comments went beyond just asking the Department to rescind the rule, but also went on to address what the Department should do instead of the Persuader Rule. And, in fact, many of those comments suggested that the current, I guess, regime that had been in place for about 50 years seemed to work fine, and advise that the DOL should retain that.
So as I mentioned, the new rule finally just came out on July 18th. And in it, the DOL, I guess the first thing to note is DOL has now indicated that it does not intend to engage in any further rulemaking, that not only is it rescinding the rule, but with this rule that was just issued, it has determined that it will keep in place the same definition of advice that has been in place for the last 50 years. And so, we don’t expect there to be any further activity from DOL on this front as a result of the recently released rule.
DOL has decided as it proposed that it is rescinding the rule, and it gave four primary reasons for doing that. First, the Department said that it has now determined that the statute's plain text clearly forbids the interpretation that the Persuader Rule had adopted, in which the district court flatly rejected. Second, the Department also determined that the Persuader Rule did cause an undue disclosure of client confidences at the heart of the attorney-client relationship. So, again, the Department has agreed with the district court's finding in the litigation, based on the evidence presented in the hearing, that the Persuader Rule imposed undue burdens and would chill employers from seeking advice and chill attorneys from providing that advice in the context of not only union-organizing campaigns but just day-to-day employment relationships because the definition or the reporting disclosure's obligations were so broadly triggered under the Persuader Rule that it would interfere with just ordinary attorney-client relationships in ordinary employment settings.
The Department also found that a third reason for rescinding the rule was that the Department had failed to properly consider the burdens that would be imposed by the LM-21 disclosure requirements. The LM-21 is the form that is required on an annual basis from attorneys and labor consultants disclosing information about all of their labor relations clients. And the Persuader Rule had failed to consider the burdens that broadened disclosure requirements for that form. The Department at that time, with the Persuader Rule, had reason that it planned to engage in further rulemaking concerning Form LM-21, and therefore it did not need to consider the burdens that might be posed by that form or the expanded disclosure requirements involving that form at the time.
Now, the Department has agreed with the district court that that was a somewhat arbitrary exclusion, in fact, should have been considered. And the Department now recognizes that requiring all those disclosures would constitute a significant burden that weighs against the Persuader Rule's definitions.
And then, finally, the Department determined as a matter of policy that it would allocate its scarce resources to other priorities rather than addressing the substantial fiscal burdens that the Persuader Rule imposed on the Department.
So with this new rule, it appears that the Persuader Rule is dead for at least now for the forthcoming future. However, as my colleague Hal Coxson, who's the head of our Government Relations Practice, likes to remind us, in Washington D.C. bad ideas never die. They just hibernate. So that may not be the end of the story forever. So with Karen, I turn it back over to you to discuss what you expect what might be the future involving the Persuader Rule in these issues.
Karen Harned: Right. So thanks, Chris. So I'll just wrap up. I mean, the one thing that I found to be very encouraging and, quite frankly, stunning from Department of Labor when you think about how agencies behave when they did the repeal of the rule is, as Chris noted at the top of his summary of the rule, they said they didn't think they had the statutory authority. And I have to say with our lawsuit and the clear win we had had at district court, I was a little concerned when the agency felt the need to have to go through this whole process to repeal.
But in retrospect, I'm just so happy about it because I do think that, as Hal as said, this idea could definitely come back with a new administration. I do feel like the agency has positioned it so that them trying to do it again would be very hard, if not impossible, to sustain in court. And I do think that's where if there is a resurrection of it, it's more likely to happen at the agency level than in Congress just because of the current makeup of Congress. I guess if it completely swapped, they might try it. But I don’t see the Republicans doing anything more than the agency already has on this moving forward, at least no time soon.
So with that, Wes, I think we're ready for questions.
Wesley Hodges: Great. Thank you so much, Karen and Chris. Everyone, let's go ahead and open the floor to questions. I know that, I believe you mentioned this in your remarks, but the case is still currently on appeal correct, Chris? Could you give us just a little more information on what's going on right now?
Christopher Murray: Sure. So ever since the DOL filed its appeal from the district court's decision back at the beginning of 2017, it's been stayed. First, DOL noted that it was issuing this notice of proposed rulemaking to rescind, and then, throughout the whole rulemaking period, the case has been held in abeyance. Now that the new rule has been issued, DOL has filed a notice with the court and over the coming two or three weeks, the parties -- well, DOL, first, will file a proposal about what it believes should happen with the appeal, and I expect the issue will be whether DOL, obviously, just dismisses the appeal or if it thinks there's something more that needs to be done. So that'll be by mid-August, we'll find out what DOL believes should happen there.
Wesley Hodges: Karen and Chris, are there any subjects that you haven't covered or that you'd like to cover in more detail?
Christopher Murray: No, I think that covers everything I can think of, unless Karen can think of anything.
Karen Harned: Yeah, I think we've done our job here.
Wesley Hodges: Well, thank you. Well, seeing no questions from the audience, Chris and Karen, thank you so much for just elaborately laying out this topic for us. We really do appreciate it. I'd like to say on behalf of The Federalist Society, I want to thank you for the benefit of your valuable time and expertise today. We welcome all listener feedback by email at email@example.com. Thank you all for joining us.
Karen Harned: Thank you.
Wesley Hodges: Yeah, thank you so much. The call is now adjourned.
Operator: Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.