Law Firms Sue DOL over Proposed ‘Persuader Rule’

Rule on union-avoidance work may require different attorney-client relationship

By Allen Smith, J.D. Apr 5, 2016
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Few things are as sacrosanct to lawyers as the confidentiality of their conversations with clients. The attorney-client privilege and Model Rules of Professional Conduct’s confidentiality requirement are intended to establish trust between the attorney and client so they can speak freely without government or other intrusion. 

Enter the “persuader rule,” which takes effect July 1 and is expected to diminish that trust and threaten the attorney-client relationship when attorneys provide advice to employers on how to keep unions from organizing in their workplaces. The rule will give lawyers the choice of complying with the law—and reporting to the government their discussions with employers on union avoidance—or complying with bar association confidentiality rules, which prohibit attorneys from divulging information the rule requires and in effect discourage attorneys from giving union-avoidance advice. Multiple law firms filed a suit March 31 to stop the rule from being enforced. 

If the lawsuit fails, the rule should mobilize HR to think differently about how the attorney-client relationship is structured, according to Diana Furchtgott-Roth, senior fellow and director of Economics21 with the Manhattan Institute for Policy Research in Washington, D.C. The institute is a think tank focusing on economic growth, and Economics21 is its nonprofit dedicated to economic research.

The rule is expected to cost billions, according to Furchtgott-Roth, and may result in some outside labor attorneys seeking to focus on other less regulated areas, such as employment law.

Consequently, Furchtgott-Roth told SHRM Online that HR professionals should “get firms to hire in-house counsel whenever possible. They are in essence exempt from the persuader rule. Large firms have their own inside counsel, so they can get all the advice they like.”

However, she said that “small firms will be at a disadvantage. They might want to consider a system where they can hire a labor lawyer for short periods of time as they need it. Put them on payroll and give them a W-2.”

Reporting Rule

A brief refresher: The rule, published March 24 in the Federal Register, requires vast numbers of employers, attorneys and consultants to disclose confidential information about union-avoidance matters to the federal government.

Under the reporting requirements, employers must submit LM-10 forms about agreements and payments with a consultant or independent contractor, including outside attorneys, when agreements are intended to establish ways to persuade employees to refrain from organizing into unions. Consultants and independent contractors must file LM-20 forms within 30 days of such agreements, and LM-21 forms annually. While these forms existed before the rule, they would now need to be submitted for indirect communications—such as messages from the employer but advised on by the attorney—as well as direct communications with employees.

Statutory and Constitutional Claims

Attorneys filed the lawsuit against the Department of Labor (DOL) in an effort to convince the U.S. District Court for the District of Minnesota to enjoin the rule.

“As counselors to the business community, we are taking a stand to protect employers’ rights to seek advice and assistance in confidence, and keep government out of employer conversations with their attorneys,” stated Millicent Sanchez, president of the Worklaw® Network, a nationwide affiliation of independent law firms practicing labor and employment law, which brought the lawsuit with 11 of its member firms.

“By requiring reporting, the department invades the employer’s confidential relationship with the lawyer because the employer may no longer feel at ease to share with the attorney a legitimate goal of remaining union-free,” said Mark Swerdlin, an attorney with Shawe Rosenthal in Baltimore, one of the firms suing the DOL.

The rule contravenes the Labor Management Reporting and Disclosure Act’s reporting requirements, which expressly exclude the giving of advice, the plaintiffs maintained. And it allegedly is an unconstitutional infringement on the First Amendment right to freedom of speech.

The plaintiffs contended that the elimination of the direct communication test made the rule unconstitutionally vague. Examples of indirect communications that would trigger the reporting requirements include:

  • Planning individual or group employee meetings.
  • Conducting a union-avoidance seminar for supervisors.
  • Drafting speeches or content for presentation or distribution to employees.
  • Developing handbook policies in response to employee complaints about the need for a union.

Under the persuader rule, reporting is required by attorneys or consultants if one develops policies with an objective to persuade employees. “In practice, every policy and procedure designed to ensure that employees are treated fairly also reduces an employer’s vulnerability to union organizing,” the complaint emphasized.

High Costs

Compliance with the rule could cost businesses “about $9 billion in the first year and $5.5 billion in subsequent years, for a 10-year cost of $60 billion,” according to Furchtgott-Roth in a January report.

The rule will cost so much “because it takes time for the companies to pay professionals to fill in the forms,” she told SHRM Online. “Firms have to decide whether they need to fill in the form. That costs money. Then, if they think they do need to fill it in, they need to pay people to do so.”

The rule says that the name of the attorney giving advice on union issues has to be made public, as well as the attorney’s clients and how much the attorney received from clients, she added. Bar association rules prohibit many attorneys from divulging this information because it infringes on client confidentiality.

So, some lawyers “will stop offering labor advice to clients,” she predicted. “Attorneys are caught between a rock and a hard place.” If they don’t report to the federal government, they face fines and imprisonment. But if they do report, they face disbarment. “The easiest thing to do is switch areas of law,” she said.

Also, if the rule “results in more unionization, this might raise wages and make offshoring more desirable,” Furchtgott-Roth said. “Look at how Ford and GM are expanding production in Mexico and China after the latest UAW [International Union, United Automobile, Aerospace and Agricultural Implement Workers of America] negotiations in November 2015.”

This case is Labnet d/b/a Worklaw® Network v. U.S. Department of Labor.

In separate litigation, the National Association of Manufacturers’ Center for Legal Action sued the Department of Labor over the persuader rule in the U.S. District Court for the Eastern District of Arkansas on March 30.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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