Court Permanently Bars New Persuader Rule

Employers won’t have to disclose fees paid to consultants, lawyers in attempts to avoid unions

By Allen Smith, J.D. Nov 18, 2016
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Lawyers and consultants may continue to advise employers on labor relations and train managers on what to say to educate employees about employers' stands on unionization. A federal district court has permanently barred a new persuader rule from taking effect.

The U.S. District Court for the Northern District of Texas struck down the new rule, which revised the old persuader rule, on Nov. 16 as overly broad, arbitrary and capricious, noted Fred Schwartz, an attorney with Barnes & Thornburg in Chicago. The new rule also unconstitutionally curbed free speech, he added.

The new rule was "inherently flawed," said Michael Lotito, an attorney with Littler in San Francisco and co-chair of the Workplace Policy Institute, the firm's government affairs branch. Some law firms announced they were getting out of the business of providing labor relations advice entirely as a result of the rule, he noted.

The new persuader rule was expected to chill speech between employers and lawyers by requiring both to disclose that they were communicating about labor relations matters with each other, as well as the fee amount that was paid for such communications. Unions were expected to use such information in corporate campaigns to highlight the lengths to which companies would go to in order to avoid unionization.

Direct Persuasion and Indirect Advice

The Labor-Management Reporting and Disclosure Act of 1959's old persuader rule for decades was understood to require the reporting to the Department of Labor (DOL) of the individuals whom employers hired to be direct persuaders on unionization—either workers hired to discourage unionization by other employees or consultants giving speeches directly to employees against unionization.

Consultants and lawyers who provide indirect advice on labor relations—those who conduct supervisor training and draft union-avoidance materials and handbook provisions—originally weren't covered by the old persuader rule.

That was to change with the DOL's new persuader rule introduced March 24, which required that employers report which consultants and lawyers provided indirect communications on labor relations, how much they were paid and some details on the nature of the communications. And it required lawyers and consultants to report who they provided such indirect communications to.

"Workers often don't know that their employer hired a consultant to manage its message in union-organizing campaigns," such as by writing speeches for managers, talking points, letters and other documents, according to the DOL. "Consultants may also direct supervisors to express specific viewpoints that don't match those supervisors' actual views as individuals—something workers may find relevant in assessing the information they receive from their supervisors."

Yet under the new persuader rule, attorneys were permitted to review a draft of a speech or handbook policy and deem it lawful or unlawful without having to report that, said Steven Swirsky, an attorney with Epstein Becker Green in New York City. The new rule created a "morass of uncertainty" as far as what was considered "indirect persuasion" that had to be reported, he said, noting that the new rule was "far different from what Congress approved and the DOL said was lawful since 1959."

The new persuader rule also created a dilemma for attorneys, who are prohibited by bar associations from reporting who their clients are, how much compensation they received for their services and details about their advice, Lotito noted.

The new rule, which was to apply to agreements made on or after July 1, was preliminarily barred on June 27.

Permanent Bar

Had the permanent injunction been denied, employers would have been reluctant to hire the help they needed to stay union-free, noted Jeffrey Londa, an attorney with Ogletree Deakins in Houston, who represented the plaintiffs in the case, including the National Federation of Independent Business.

The permanent bar will be bad news for labor unions that "wanted to pummel" employers with this information, Lotito said. The new rule was "part and parcel with the effort to make it easier to unionize" under President Barack Obama's administration, he added.

[SHRM members' only toolkit: Preparing for the Possibility of Union Organizing]

With the permanent injunction, businesses—small businesses in particular that don't have the benefit of in-house counsel—can seek out legal advice "when they enter the confusing world of labor relations law," said Steve Bernstein, an attorney with Fisher Phillips in Tampa, Fla. He noted that companies will return to enjoying an "advice exemption" from the reporting requirements, permitting employers to receive guidance on labor.

Now that the new persuader rule has been barred, the old one resumes effect, requiring that consultants' direct persuasion to employees on union organizing be reported. Such direct persuasion is, however, rare.

This case is National Federation of Independent Business v. Perez, 5:16-CV-066-C (N.D. Texas 2016).

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