Texas Court Halts Timeline on ‘Persuader Rule’

Employers rushing to finalize union communication agreements with attorneys, consultants get reprieve

By Allen Smith, J.D. Jun 28, 2016
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Employers facing union campaigns around the country can take a deep breath. Those who wanted to use indirect service providers to communicate with employees in an effort to prevent them from forming unions have been scrambling to enter into agreements with attorneys and consultants before July 1 so that they do not have to comply with a Department of Labor (DOL) "persuader rule" that takes effect then.

But on June 27, the U.S. District Court for the Northern District of Texas granted a nationwide preliminary injunction on the rule.

Common indirect persuasion services include supervisor training, drafting of union avoidance materials and providing labor advice.

The court noted that the American Bar Association expressed opposition to the persuader rule, which would require disclosure of confidential client information, such as the existence of the client-lawyer relationship and the identity of the client; the general nature of the legal representation; and a description of the legal tasks performed, including indirect persuasion services. The court ruled that the plaintiffs—the National Federation of Independent Business, the Texas Association of Business, the Lubbock Chamber of Commerce, the National Association of Home Builders and the Texas Association of Builders—had shown a likelihood of success on their claim that the rule exceeds DOL's authority by effectively eliminating the Labor-Management Reporting and Disclosure Act's (LMRDA's) "advice exemption" (National Federation of Independent Business v. Perez, 5:16-cv-00066-C).

The court ruled that the plaintiffs also showed that the persuader rule violates the First Amendment rights to free speech and free association, and that it was impermissibly vague in violation of the Fifth Amendment right to due process, noted Jeffrey Londa, an attorney with Ogletree Deakins in Houston. And it held that the Department of Labor had not calculated the cost to small businesses as the Regulatory Flexibility Act requires.

Indirect Persuasion

The rule will impose what attorneys and consultants consider to be onerous reporting requirements when they act as indirect persuaders for employers that are seeking to avoid unionization—reporting requirements that could interfere with employers' confidential relationship with them.

The March 24 persuader rule instituted by the Department of Labor reinterpreted the so-called advice exemption in Section 203(c) of the LMRDA. Under the DOL's rule, consultants' and lawyers' indirect communications—such as speeches or scripts provided to supervisors to share with employees and intended to sway employees against unionizing—now must be reported to the DOL and do not fit within the advice exemption.

Attorneys or consultants engaged in direct (face-to-face) communication with workers to dissuade them from joining unions already had to report this activity and how much they were paid, but, prior to this rule, indirect communication was not reportable.

Under Section 203(a) of the LMRDA, an employer must report to the DOL on Form LM-10 any agreement with a third-party consultant to persuade employees to avoid joining a union. Under Section 203(b), a labor relations consultant must report to the DOL on Form LM-20 any agreement to persuade employees to avoid joining a union, including the amount paid as part of the agreement. Under Section 203(c), however, no one has to report the services of a consultant who provides advice—what used to be considered to include indirect persuasion—to the employer. Now the advice exemption has been dramatically scaled back.

Any organization confronted with union-related challenges will find it must report to the DOL its providers of indirect persuasion not to join a union, fees paid and services rendered, said Michael Lotito, an attorney with Littler in San Francisco and co-chair of its government relations arm, the Workplace Policy Institute. These reports, which the Department of Labor makes publicly available on its website, "will then be used against them by third parties looking to exert additional leverage against the target company."

Phillip Wilson, president and general counsel for the Labor Relations Institute, a consulting firm based in Broken Arrow, Okla., noted that indirect persuasion includes:

  • Writing speeches.
  • Training supervisors.
  • Planning meetings.
  • Developing written materials, websites or videos.

Under the persuader rule, "almost anything a consultant or lawyer helps to develop or plan that will communicate to employees about the exercise of their rights under the NLRA [National Labor Relations Act] could trigger a reporting requirement," he said.

July 1 Deadline

Andrew Auerbach, deputy director of the Office of Labor-Management Standards at the DOL, recently said, "Services and payments made pursuant to a multi-year agreement, even if they occur after July 1, are not required to be reported on the new Form LM-20, so long as the agreement was signed prior to July 1."

The July 1 deadline is made less urgent by the issuance of the preliminary judgment. "Agreements aren't needed if the order stands," Londa remarked. But, he said, there is no harm in entering into such agreements if the order doesn't become permanent and doesn't survive appeals.

In a letter to clients, Wilson said it would be prudent for them to have an agreement on file prior to July 1, 2016. He included a copy of an agreement to provide labor relations advice; the agreement did not cover direct persuader activities because these already were covered by reporting obligations prior to July 1.

"Since the current rule allows for informal agreements or arrangements, we will assume that you wish for us to keep this agreement on file unless you inform us otherwise," the letter stated. "If you wish to formalize the arrangement, feel free to sign and return the acknowledgement prior to July 1, 2016, and we will keep it in our files."

"If there is no agreement entered into before July 1, 2016, the amount of reporting required under the new rule is expansive, ambiguous and a violation of the attorney-client confidentiality rules in the view of the ABA [American Bar Association]," Lotito said.

He noted that his firm has filed a lawsuit on behalf of the Coalition for a Democratic Workplace seeking to enjoin the rule's implementation, and that there are at least two other legal challenges of the rule, including the one in Texas. The coalition has more than 600 business organizations joined by their mutual concern over actions by the National Labor Relations Board. 

In addition, Society for Human Resource Management (SHRM) Member Sharon Sellers, SHRM-SCP, testified earlier this year before Congress about SHRM's concerns with the rule. And SHRM was joined by 19 state councils and 47 chapters when it filed comments in response to the proposed rule; 2,477 individual SHRM members also submitted comments.

'Major Loophole'

"The 'grandfathering' of agreements prior to July 1 was written into the new regulations," said Peter List, CEO of Kulture, a national labor-employment consultancy based in the Charleston, S.C., area. "However, it wasn't until more recently that the DOL provided some clarity to the matter."

If the preliminary injunction becomes permanent and survives any appeals, the new persuader rule doesn't take effect and indirect persuader activity won't be reportable.

But if the preliminary injunction doesn't stand, List said, the grandfather provision provides "a major loophole" for large companies, most of which have longstanding relationships with labor attorneys. "Those who will be hurt the most are the smaller employers who do not typically have [established relationships with] labor attorneys," he said.

While the grandfathering language is welcome news for employers, James Hays, an attorney with Sheppard Mullin in New York City, said that "at this juncture, it is unclear how far this protection will last into the future."

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

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